If you are considering buying a condo, you need to prepare yourself. It comes with different issues that you need to keep in mind, especially if it’s your first time. It is definitely different than buying a house.
Living in a condo means adjoined walls, HOA rules and regulations, and shared amenities. Overall, the whole process of buying condos and getting a mortgage is different than buying a house.
- Before you start viewing condos, it’s essential to know and fully understand the critical differences between living in a single-family home and a condo. It is the only way to decide whether the condo life is for you.
- Many people choose condos over houses for the low costs. They are typically cheaper than houses and require less maintenance. They are an excellent option for people looking for affordable alternatives.
- Getting a loan for a condo is hard since many lenders have rigid requirements.
- Residents have to follow the HOA’s CC&Rs. It stands for covenants, conditions, and restrictions of the condominium complex. Otherwise, they can be fined or worse, sued.
- Residents also have to pay a high monthly fee for any reparation and the maintenance of the common grounds, lobbies, pools, and everything else.
Should You Own a Condo?
Before sealing the deal, you need to ask yourself whether you are a condo person. Living in a condo means you have to be a city type of person. Most complexes are located in urban and densely populated areas or downtowns. Some development even comes with bank branches, stores, and a few other businesses. However, that might cause more noise and crowdedness.
If you have a certain area in mind for your condo, you have to check the neighborhood several times at different times, both at day and night, to see how bright and noisy it is. It will help you make a decision and eliminate that particular area from your list if the noise is an issue for you.
Another matter you should consider when buying a condo is the Homeowners Association (HOA). They come with strict rules, conditions, and restrictions that you must abide by in order to live in the area. If you are not one to follow the rules, you might need to reconsider buying a condo, especially since non-compliance could get you fined or sued.
Condos are an excellent option for first time home buyers who are on a budget and can’t afford a single-family home. Additionally, they require low maintenance. It’s great for busy people who can’t take care of any physical management of the property. Since most condos are located near or within big cities, they are great for city folks.
How to Buy a Condo
Buying a condo is quite different and more complicated than buying a house. Lenders have strict rules when financing this type of property. First, a certain percentage of the total of the units needs to be owner-occupied. Second, the number of condos that can be owned by one person is restricted. Usually, lenders can’t finance a purchase if the same investor owns more than 10 % of the total units. Some lenders even have restrictions regarding the occupancy rate. They require most units to be occupied before they agree to give a loan.
Condos’ loan-to-value ratios are also stricter and more restricted than houses’. Federal Housing Administration (FHA)-backed mortgages for condos are a thing too. However, the condos’ restrictions are numerous. For example, the building needs to have more than four units to be financed.
Loans are not the only finances you should worry about. There are other costs of buying a condo. First, it’s the Homeowner’s coverage. Even though the HOA provides insurance, you might need additional coverage. Make sure to read all the documentation regarding the insurance carefully.
Also, keep in mind that there is a monthly fee you need to pay. It concerns the ongoing maintenance and repair of the shared areas in the complex. These fees concern pools, lobbies, elevators, recreation rooms, and any common grounds.
The HOA can reserve some funds for extensive repairs, such as painting or roof replacements. The monthly fees vary from one complex to another, depending on the amenities offered.
Avoid Condos With Certain Problems
Purchasing a condo is tricky, and it’s essential to protect yourself and your rights by researching the Homeowners Association beforehand and attend their meeting. You also need to talk to several neighbors and figure out if they are satisfied with the way the complex is managed.
Review all the documentation to know what is covered by the HOA and what’s not. You should also consult with a few board members to find out more about the association and its work over the last few years.
You should also find about the HOA’s litigation history regarding taxes and other issues both for taxes and other general matters. There might be some pending lawsuits that you don’t want to be part of. Sometimes, condo associations file for bankruptcy due to unpaid HOA dues. When lenders stop receiving their dues, they’ll stop financing the units. Additionally, you should review all the financial records. Homeowners’ Association should have a minimum of 25% of the gross income as a reserved fund for future repairs and emergencies. You should also check tax assessments and have them in line. If the condo’s price is low, but the tax assessment is high, you may be hit with a higher tax than what you expected.
Overall, condominiums are a great investment for a certain type of people. However, in tough markets, it’s harder to buy and sell a condo than a single-family home. It’s crucial to review the HOA, its history, and its CC&Rs and to have your taxes in line to avoid any future unfortunate situations.
Before hiring a real estate agent to help you purchase a condo, make sure they have a lot of experience with condos and the issues surrounding them. Buying a condo is not as simple and as easy as buying a detached home.