Condo units are easier on the pocketbook than single-family residences. Condos offer home ownership at a fraction of the cost but like all real estate comes with different nuances. Here’s what you need to know when purchasing a condo unit…
- How much do you qualify for? This should be priority number one for all home buyers because it draws a line in the sand between being able to purchase a condo unit versus not. One of the biggest factors regarding purchasing a condo is the monthly homeowner’s association payment. The monthly homeowner’s association payment can be anywhere between $200 to $400 per month in some cases.
- What does the homeowner’s association payment specifically cover? Most homeowner’s association payments only insures the air between the units and any contents inside your unit will have to be insured in the event of damage with a separate walls in insurance policy especially if you’re getting mortgage loan financing.
- Is the property you’re looking to purchase truly a condominium unit or is it a PUD? They are not the same thing. A planned unit development typically has in most cases a lower monthly hoa payment and is typically more of a planned community of single-family homes or Town homes that look cookie cutter to the naked eye. If the property is a PUD mortgage loan financing is far more flexible because you’ll be able to get FHA financing using just 3.5% as a down payment. If the property is truly a condominium unit you’re limited to a 5% down on conventional financing.
- What is the homeowner’s association done to maintain the integrity of the units in the complex? Might not be a bad idea to interview other owners in the complex to see what their opinion of the HOA is. You want a homeowner’s association that is responsive to owner requests and does a thorough job of maintaining the property.
- If you’re buying the new property for rental property purchases how many of the units are rentals? This is especially important on conventional financing because not more than 10% of the total units can be owned by any single entity.
- Is the the hoa currently in litigation or have there been in litigation issues in the past and if yes, for what causes specifically? This might give your insight as to what owning a condo in that unit might look like and it will give you further insight as to if you might have an issue in the future with potentially refinancing or selling that property down the line. What you would want to avoid at all costs is a litigation situation that prevents a transfer of title in the future.
- How does the condo purchase compared to the purchase of a single-family house? Not in all but in some cases, you might be paying for a condo what you might be paying for a single-family house because of the homeowner’s association payment. This would be more reflective of your credit score, and overall mortgage loan program however in some cases a single-family house might not be that much more than a condominium purchase… something to consider if the payments are otherwise similar.
- Condominium mortgage loans cost more. Condominiums are harder to foreclose on than single-family houses because of the homeowner’s association which is a legal governing entity of the condo complex.
A condominium purchase is a fantastic investment towards your long-term financial future and here’s why. Condos cost less than single family residences and are more affordable. A condo can be a great starter home to catapult yourself into a single-family residence down the line as your income and finances and equity permit. When you purchase a condominium unit on a 30-year fixed-rate mortgage part of your payment is going to interest and part of your payment is going to principal. Beyond that, you have market forces that will work for you and that can be a supportive aid in an endeavor to use a condo as the catalyst for subsequent home purchase in the future. Additionally, Condominiums have next to no maintenance and require far less upkeep than single family homes. They’re much easier to maintain and they can be sold in a 1031 exchange if you ever decide to rent that property out and purchase another rental property.
Looking to buy a condo or your first home? Begin now.