Buying a condo can be a great idea. Prices are often cheaper than for single-family homes, and many condos come with luxury amenities for their owners.
And if you’re at a stage in your life when you don’t have the time or ability to do upkeep, a condo can provide a (literally) low-maintenance environment.
Of course, there are downsides, too. Condos come with pricey monthly fees and restrictions on how you can use the space.
You may still decide a condo is the right choice for you. Millions have. However, you should know what to expect before you buy.
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When you’re buying a condo, you’re taking ownership of a unit within a larger building or development. You’re going to own your individual unit and be responsible for its internal repairs and maintenance.
There are two distinct advantages to buying a condo:
However, those perks don’t necessarily come free of charge.
Condo prices are often lower than ‘traditional’ home prices, so a condo could be a more affordable starter home for a first-time home buyer. And you get those extra amenities mentioned above.
However, you’ll want to look at monthly homeownership costs as well as the upfront purchase price.
That’s because the homeowners association fees could potentially make a condo more expensive month-to-month than a comparable house.
You won’t have worry about mowing the grass, cleaning the common areas, or climbing up a ladder to paint the exterior of the building. But someone has to. And you, along with all the other unit owners, will have to pay them.
You’ll also have to chip in for other costs, such as buildings insurance.
When you add your monthly HOA or condo fees to your mortgage payment, you may well find you pay less for a single-family home, even when you account for home and yard maintenance costs.
For instance, look at these two examples.
Condo:
Single-family home:
In this case, the house is about $20 per month cheaper than the condo. And those savings will compound over time. So do the math before you buy.
Similarly, if you opt for a condo with lots of fancy amenities, you need to be aware you’re going to pay your share for them all — whether you use them or not.
That pool and gym in the brochure are sure to impress your visitors. But, if you’re never going to use the facilities, there may be cheaper ways to buy yourself some prestige.
If you decide a single-family home is the way to go, for example, you can always get a gym membership, and that would certainly cost you less than a condo and its amenities.
You may have heard it’s more difficult to finance a condo — and it’s true, there are some unique challenges to securing a mortgage for a condominium.
Whether or not you can get a mortgage depends on your specific condo building and the type of home loan you hope to use.
For example, your condo development will have to be on an approved list for you to get a mortgage backed by the Federal Housing Administration (an FHA loan). Luckily, HUD’s website has a lookup tool that lets you find out whether your condo is approved.
What if you want a conventional loan? In this case, your condominium complex will need to pass a ‘limited review’ process by which the mortgage lender determines it’s a safe investment.
Fannie Mae — one of the two agencies that regulates these mortgages — suggests “you’ll want to evaluate the condo carefully before finalizing your purchase offer. You’ll want to know:
If there’s a problem with either of those, you should probably move on. And if you’re unsure what “assessments” are, we explain below.
You can ask your real estate agent or lender about whether the home you want to buy complies with your lender’s rules.
A well-run HOA or condo company should normally have a pile of cash saved up. It should charge each owner a bit more than it needs each month so that it builds up reserve funds. That way, it can pay for big-ticket repairs and maintenance when those become necessary.
When you’re buying a condo, you’ll be given a chance to look over the HOA’s books. You should absolutely do this.
These are huge bills that suddenly land in unit owners’ mailboxes demanding big sums of money for unavoidable repairs. That can be thousands or even tens of thousands of dollars.
When you’re buying a condo, you’ll be given a chance to look over the HOA’s books. This is something you should definitely do.
If you have no idea what you’re looking at, ask a friend who does or pay a professional. Assessments are no joke.
Of course, if you discover big assessments are in the pipeline, that will dramatically reduce the property value. So see if the current owner will take liability for those or get a price reduction that reflects the threat. Otherwise, walk away.
When you’re buying a condo, you’ll be given a copy of your HOA’s or condo company’s Covenants, Conditions, Restrictions and Easements (CC&Rs).
This is must-know information. To start with, they’ll tell you what belongs to you within your unit and what’s the HOA’s responsibility.
Your shared interest (part-ownership) of your HOA may mean you share liability for its issues. So, if it signed off on a building that was full of defects, you could end up paying for some of the remedial work.
If you like the perks of buying a condo, don’t let the potential drawbacks put you off.
Now you know exactly what to look for and what to avoid — so your chances of picking the perfect place are better than most people’s.
Earlier we compared the cost of a single-family home to a condo.
At face value, buying a condo may be significantly cheaper. In 2020, the average condo unit sold for $266,300, while the average single-family home cost over $300,000.
When it comes to monthly payments, though, condo costs can shoot up thanks to HOA dues — which are often a few hundred dollars per month.
So if you’re considering a condo versus a standalone home with comparable sticker prices, you’ll want to take a close look at the monthly costs and see how they compare.
A condo might not be too much more than the other available options, and the extra amenities can sweeten the pot.
Do you prefer an urban, suburban, or rural setting? When buying a condo, you’ll often be in or very near a city by default.
With an urban setting comes grocery stores, restaurants, entertainment, and more, often just a few steps from your front door. Living in or near a city could also put you closer to work and reduce commute times. Many buyers will appreciate the convenience this offers.
But if you prefer the peace and quiet a more rural setting can provide, a condo likely wouldn’t make you happy.
In addition, many condos have patios, courtyards, or other outdoor spaces for owners to enjoy — but remember these areas are shared with your condo community. A condo won’t offer the same type of privacy and space that you often get with a standalone home purchase.
Do you prefer a low-maintenance home? If you live in a condo, you are only responsible for maintaining your interior space. The rest of the building and its exterior are someone else’s responsibility.
That means the maintenance tasks that often burden homeowners, such as landscaping, shoveling, and cleaning out gutters, are not a concern of yours. (Though remember, you pay for these conveniences in the form of HOA dues.)
Condo mortgage rates are typically a bit higher than interest rates on single-family home loans.
That’s because condo loans are considered riskier; the quality of the loan depends on factors other than the borrower’s income and credit score, like how well the HOA manages its funds.
However, today’s mortgage rates are low across the board. So there are good deals to be had for condo buyers. You just have to shop around to find your best offer.
Authored By: Peter Warden The Mortgage Reports EditorPeter Warden has been writing for a decade about mortgages, personal finance, credit cards, and insurance. His work has appeared across a wide range of media. He lives in a small town with his partner of 25 years.