Buying a condo can be an easier option when buying your first home. You won’t have to worry about upkeep in the same way as a single-family home, and you’ll also have access to more amenities.
But before you consider a condo purchase, there are a few things you need to consider.
Many people don't know what a condo is or its definition. It's not complicated, but it's worth knowing before purchasing.
Condos are typically single units within a larger property or community. This is commonly an apartment building or a townhouse, but it can be any type of property.
When you decide whether buying a condominium is right for you, understanding what is included in the purchase is important.
You will own the unit and share ownership of the common areas in the development. This means you will be responsible for paying some of the maintenance, as well as paying utilities and property taxes.
Normally, a condo association will manage the maintenance, but HOA fees will have to be paid, and additional charges may be imposed if unexpected repairs are required.
Condos are, on average cheaper to buy, but you get a bit more for your money with a house. Buying a condo means you only own the interior, but with a house, you also own the exterior.
Condos generally provide less space compared to houses. And with a house, you usually have more freedom to make changes that condos don’t offer.
When financing your purchase, the requirements are easier, and the terms are better when buying a house.
Condo mortgages often have higher interest rates, and you’ll need a 20% down payment to avoid private mortgage insurance. Condos are seen as a greater risk by lenders, so they increase the cost of borrowing to protect their investment.
Before you decide to buy this type of home, there are a few things you should consider:
If you enjoy being in the yard, a condo might not be right. Having a condo does reduce your maintenance costs and responsibility. You will be sharing walls with your neighbors, so if you don’t like the idea of sometimes hearing from them through the walls, condo living won’t be for you.
A real estate agent familiar with condo developments should know about issues local communities have and the likely resale values.
A condo development could have problems with the amenities, or there could be issues with financing. Having someone like this on your team could save you from making a mistake you will regret.
Your real estate agent can help you get the condo docs and financial statements. It will be advisable to have a real estate attorney look over these documents for abnormalities.
For example, you will want to ensure ample money in the reserve fund and no special assessments coming.
The restrictive covenants can also be reviewed to ensure there is nothing problematic.
Some condos will offer residents various amenities, though others will only provide the basics. You should know your must-have amenities and what you can happily do without.
While a pool might be nice, do you need it? Something like that should help the resale price when you sell, but it will mean you have higher fees to maintain additional facilities like these.
Before you buy, find out how well the development is managed. Ask who deals with the everyday maintenance in the building, and find out about the company that manages the development.
You should also find out about the rules for living in the units. They might have noise or pet restrictions that you should find out about early on.
Find out what fees will be charged and check if a special assessment is pending. A special assessment is an extra cost a condo owner must pay when an expensive project is required to maintain the building.
If the condo development is FHA-approved, it will be easier to find a home loan. The FHA lists approved condos on its website.
Without FHA approval, buyers could be locked out of a popular loan program. Many first-time home buyers will choose an FHA loan because of its low down payment requirement and more relaxed credit score requirements.
The only downside of buying with an FHA loan is that there are property condition requirements. An FHA appraiser will check to ensure the property meets its standards.
While buying a condo is a cost-effective way to buy a home, it does have some downsides. It can be a great option for first-time buyers and means you don’t have to worry about maintenance.
Ensure you do research on the community before committing. It is more essential than your due diligence on the unit.