How to Buy a Condo for The First Time

By Erin Gobler / Published May 20, 2022 / Fact checked by Jane Meacham

 

 

For some people, their vision of homeownership is a single-family home with plenty of land. But others picture the benefit of having their own space, minus the maintenance and upkeep that comes with owning a traditional home. If you’re considering buying a condo for the first time, there’s a lot you’ll need to know and much you can do to prepare for it. Learn more about the pros and cons of buying a condo and a few tips to know before you start the process.

 

What Is a Condo?

A condo—short for condominium—is a type of housing where each unit is privately owned but all owners have a shared interest in the community space. Condo owners only have ownership of the space within the walls of their units, while everything outside of their units is shared with the rest of the condo owners.

 

Many people picture condos as a style of housing similar to apartments, where there are many units next to and on top of each other in a large building. While that’s often true, especially in certain areas, condos can be any type of housing, including apartment-style units, townhouses, and detached homes.

 

One defining characteristic of a condo is the presence of a homeowners association (HOA), which governs the community. HOAs charge annual dues to residents, but in exchange, offer various services and amenities, including snow removal, property maintenance, and community spaces such as pools, party rooms, and fitness centers.

 

• Requires HOA dues

• Subject to HOA rules and restrictions

• No ownership of land

• More difficult to finance

• Less privacy from neighbors

• Potential for unexpected costs
  
  

Pros Explained

• Ownership of an appreciating asset: Unlike renting an apartment, where your monthly payments are going to a landlord, owning a condo allows you to build equity in an asset that has the potential to appreciate over time.

• Control over the interior of your home: When you own a condo, you have more control over the interior of your home than you would if you rented an apartment. You can renovate and decorate (to an extent) without needing permission from a landlord.

• Less maintenance than traditional homeownership: As a condo owner, you’re only responsible for the interior of your home. Any maintenance of the outdoor space is done by the HOA and is paid for by your HOA fees.

• HOA amenities and services: Many HOAs offer services and amenities that condo owners appreciate. As mentioned, HOAs handle outdoor maintenance. But many also offer community spaces like a meeting room, pools, parks, fitness centers, and more.

• More affordable than single-family homes: According to March 2022 data from the National Association of Realtors (NAR), the median condo price in the U.S. is about 18.6% lower than the median single-family home price.3

• Sense of community: Many condo owners appreciate the community aspect that comes with living in a shared space. While you still have some privacy within your home, you may also find it easier to meet your neighbors and build a community for yourself.
  
  

Cons Explained

• Requires HOA dues: Along with the benefits of an HOA come the expenses. Condo residents generally must pay HOA dues that can range from hundreds to thousands of dollars per year.

• Subject to HOA rules and restrictions: One of the powers of an HOA is to set regulations that residents must abide by. For example, you may need HOA approval to make changes to your condo and may be penalized for failing to follow the rules.

• No ownership of land: When you own a condo, you only own the interior of your unit, while anything outside of your unit is the property of the community. Even if you have a yard space outside your home, it technically isn’t your property.

• More difficult to finance: When you’re buying a condo, you may run into additional roadblocks to lining up your financing. Not only do you have to be approved, your condo also must be approved.

• Less privacy from neighbors: Many people who own condos live in apartment-style housing, meaning you share walls with your neighbors. Additionally, the outdoor space is shared, meaning you have less privacy.

• Potential for unexpected costs: As a member of a condo association, you’re partially responsible for the exterior space, at least financially. If there are repairs or unexpected maintenance work needed, you could be stuck footing part of the cost.
  
  

As with any other type of home, there’s a lot you’ll need to know before buying a condo. There are also some nuances and special considerations that you won’t necessarily run into with other types of homes. Here’s what you can do to prepare for your first condo purchase.

 

Finding the right real estate agent is essential for any home purchase, and buying a condo is no exception. When you’re shopping for a condo, it’s especially important to look for real estate agents who not only have experience with condos but are familiar with the neighborhoods you’re considering buying in.

 

“I definitely suggest working with someone who is active in the local market,” Jodi Dougherty, a broker and the director of broker development at Chicago-based Downtown Realty Co., told The Balance in an email. “For example, I wouldn’t pick a Realtor who works primarily in the suburbs if you’re looking to buy a condo in a major city.”

 

Anytime you’re considering a home purchase, it’s important to have your finances in order before you even start the process. Condo buyers have access to many of the same financing options as those purchasing single-family homes, but there could be some additional hoops to jump through.

 

“For condos, the condo association/complex must also be approved for a full loan approval to be issued,” Shelby McDaniels, channel director for corporate home lending at Chase, told The Balance in an email. “This may require additional paperwork, approval from the condo association, and even some additional costs paid prior to closing.”

 

 

“Given these considerations, getting preapproved will be a critical step in the condo-buying process,” McDaniels said. “Once you’ve been preapproved, you can shop confidently, using your budget as a guideline.”

 

As discussed, your condo association must be approved by your lender to qualify for a condo loan. Similarly, a condo must be approved for buyers to qualify for a Federal Housing Administration (FHA) loan. If you’re considering relying on an FHA loan to buy your home—and even if you aren’t—it’s worth checking the U.S. Department of Housing and Urban Development’s (HUD) list of approved condos.

 

Keep in mind, however, that in today’s hot housing markets, an FHA loan could be a disadvantage, and buyers who qualify for a conventional mortgage may want to go that route instead.

 

“Seeking an FHA loan works in some cases, but it may put you at a disadvantage in today’s ultra-competitive, multiple-offer market,” Dougherty said. “Putting 3.5% down isn’t nearly as strong of an offer as someone who is putting 20% down—or paying cash.”

 

The HOA and its management play major roles in condo living. The HOA offers certain services and amenities, and it’s worth researching those ahead of time to ensure they meet your needs. In many cases, a condo association can make your experience with condo living a positive one.

 

But even more important to consider is the fact that an HOA board can set rules and restrictions the rest of the HOA residents must follow. Unfortunately, that part of condo living could detract from your experience.

 

 

 

Remember that in addition to your mortgage payment, you’ll also be on the hook for other ongoing expenses, including your HOA dues and property taxes.

 

Depending on your HOA, your dues could be relatively affordable and not cost more than a few hundred dollars a year. On the other hand, they could be hundreds of dollars or more per month.4 “Additionally, whether they are paid monthly or annually, you will still be required to pay property taxes and need to carry homeowners insurance to cover your contents and your internal structure,” McDaniels said.

 

Buying a condo can be an excellent choice for someone who wants to purchase their own home at a more affordable price than they face with a single-family home (although that isn’t true everywhere). Condos also offer several other perks that make them attractive to buyers, including the lack of maintenance required and the amenities that may be available.

 

That said, condo living isn’t for everyone, and there’s a great deal to consider before you start your buying journey. Be sure you’ve researched reputable real estate agents in your area, prepared your finances, and thoroughly researched the homeowners association for any condo you’re considering buying.

 

Buying a condo with zero down will be more challenging even than buying a single-family home with no money down. In fact, lenders often require even larger down payments from condo buyers.

 

When you own a condo, you only own the space inside your unit. The space outside your specific unit is shared by all the condo owners and is the responsibility of the condo association.

 

The credit score you’ll need to buy a condo depends on the type of loan you plan to get. You may qualify for an FHA loan with a credit score as low as 500 if you can put 10% down.

 

See the original article Here.