For many prospective home buyers, a condo can serve as a stepping stone to homeownership. It offers an affordable alternative to a detached single-family home, providing ownership of an asset that may appreciate in value and can be customized with more improvements than a rental. Plus, you won’t have to handle all the upkeep, similar to renting.

So, what should you consider when thinking about buying a condo?

Understanding Condos

A condo is a housing unit that is part of a larger condominium complex. This complex can be a multistory building with apartment-style dwellings or a sprawling development with detached units.

One important distinction between condos and single-family homes is that while you own the condo itself, you don’t own the land it sits on. In other words, you have ownership of the walls and everything inside your condo, but the exterior and other shared spaces are not yours.

When you buy a condo, you typically gain access to the complex’s outdoor and common areas. This means you may have the opportunity to enjoy amenities such as a gym, lobby, elevator, or garage. However, it’s important to note that you may be limited in your ability to make changes to the areas outside your condo, such as planting a garden.

While the condo complex is owned by a single person, company, or group of investors, the management of shared areas is usually handled by the homeowners association (HOA). The HOA consists of condo owners from within the complex.

Although HOA members don’t have a greater ownership stake, they do have the authority to establish and enforce rules. These rules can include restrictions on activities within your unit, such as the number of pets allowed or the volume of music.

The HOA also sets monthly fees to cover the maintenance of common areas. These fees are in addition to your mortgage and should be considered when budgeting for your home purchase.

Is Buying a Condo Right for You?

Ultimately, the decision to buy a condo or a house depends on your lifestyle. Jan Stern, a Century 21 real estate agent, suggests weighing the pros and cons.

“A house offers more privacy, but also more responsibilities,” says Stern. With condos, she points out that “some people dislike the maintenance fee, but would you have access to amenities like a pool, volleyball court, or tennis court without it?”

When considering buying a condo, think about the amenities that you would genuinely enjoy and utilize. Then, compare them to the recurring costs associated with owning a single-family home.

Remember, making an informed decision that aligns with your needs and preferences is key.

Finding the Perfect Condo for You

Instead of fixating on a specific unit, focus on finding the ideal condo complex. “It’s important to be in an environment that feels right,” suggests Stern. Take the time to visit the complex at different times of the day and speak with current owners to gauge their satisfaction.

Why is it crucial to identify the condo community before making a purchase? Because both the complex and its HOA can impact your ability to secure a condo mortgage.

Government-sponsored enterprises like Fannie Mae and Freddie Mac, as well as agencies like the Federal Housing Administration and Department of Veterans Affairs, have set certain standards for condos, which can limit your financing options.

While guidelines for FHA-approved condos have become more lenient, borrowers using a VA loan are still restricted to VA-approved complexes. Even if your condo complex meets the standards, you might need a larger down payment for a better interest rate.

What Sets Condo Buying Apart?

Although many aspects of buying a condo resemble purchasing a house, there are a few differences in the process.

When applying for condo mortgage preapproval, you may need to provide documentation about the condo complex beforehand. Lenders typically want to know if the HOA is involved in any lawsuits, the percentage of owner-occupied units, and the types of insurance the complex carries. In addition to reviewing your finances, lenders will also scrutinize the condo complex’s financial records.

Once your offer on a unit is accepted, more due diligence is required. According to Stern, buyers often can’t access the complete documentation on a condo complex until after their offer is accepted. This includes covenants, conditions, and restrictions that residents must follow, a breakdown of monthly HOA fees, and specific disclosures for your unit.

The HOA’s budget, which your lender will likely request, is another important aspect to consider. Verify that the HOA isn’t running a deficit and that funds are allocated for emergencies. If there aren’t enough funds to cover significant expenses like roof replacements, condo owners may face a special assessment—an additional one-time charge to cover the cost.

Stern also suggests requesting HOA meeting minutes from the past six months. The minutes can provide insight into ongoing issues, disputes, and upcoming projects such as aesthetic updates or new amenities that might require additional payments.

By conducting thorough research, you can feel more confident that a condo—and its community—is the perfect fit for you.

Contact Sword Mortgage To Learn More About Your Options

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