Condo's and Condon'ts

Yeah, I know, pretty cheesy title. Hey not everything Mozart put out was gold, either. The topic is serious, however. Most people assume that purchasing a condo is the exact same as purchasing a single family home. Not the case.

For those that are not familiar, a condominium is a single unit that is part of a larger property. There might be 2 condos on the property or 2,000. Every property is different. What is important, is that they are all part of the same space and have shared structures. These condominium complexes are typically managed by an outside company that handles the general maintenance of the exterior (roof, siding, landscaping.) Often times, they will share some utilities like water, sewer, and trash removal. They will also have amenities similar to an apartment complex (pool, gym, clubhouse, etc...)

All of that sounds simple enough, and it can certainly be attractive to the right buyer. It is very similar to the low-maintenance perks of apartment living, while still building equity. However, financing a condo can be a bit tricky. First, there are two types of complexes: FHA approved and non-warrantable. For a condo to be FHA approved, the following needs to be true:

  • No one person can own more than 10%
  • At least 50% must be occupied by the owner
  • No more than 15% of owners can be late on dues

There are also a few other requirements with the types of loans, but that is something a lender can tackle. Why would you want a condo that is FHA approved? Simple. You can purchase it with an FHA loan, and when you go to sell, your buyer can get an FHA loan. By eliminating the possibility of an FHA loan, you are cutting out a fairly large segment of buyers. This also means a larger down payment from you, which for some buyers, can handcuff their ability to purchase a property that needs a bit more work. 

Generally speaking, a larger down payment is going to be necessary for a condo purchase as compared to a single family home. There are also fees that must be considered when talking about a loan. HOA's can be a killer. For example's sake, let's say you want to buy a condo. It is listed at $100,000 in a non-warrantable building. It has HOA fees of $250 per month. Because it is a non-warrantable building, a 25% down payment is required by the lender. There is also a home that you like. It is for sale for $150,000. It is not part of a neighborhood association. Let's compare the two.

  • Condo
    • $75,000 mortgage
    • $25,000 down payment
    • Approximate monthly payment of $800
  • Single Family Home
    • $125,000 mortgage
    • $25,000 down payment
    • Approximate monthly payment of $900

Do you think there is a difference between a $150,000 house and a $100,000 condo? Absolutely. Is the house a better buy? Not necessarily. Every buyer has different needs, and it is important to speak with a Broker regarding what should work best for you.