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What to Know About Buying a Condo

A condominium, also just known as a condo, is different from buying a house. If you’ve never bought one before, you might be surprised at just how different it can be. The process is different, in addition to the differences in the condo lifestyle.

Before you purchase, you need to understand the condo lifestyle to decide if it’s right for you.

What’s a Condo?

Many people like the idea of making a condo their first home or maybe downsizing to a condo. When you live in a condo, you don’t have to worry about the maintenance and upkeep as much as you do with a single-family house or even a townhouse. There are often shared amenities, and the condo association takes care of building maintenance.

A condo is a single unit in a multi-unit property. It’s usually within an apartment-style building. Your condo can be one of many units in a shared structure like you see in high-rise buildings in urban areas. Condos can also be smaller walk-up buildings that just have a few units.

You own your unit when you buy a condo. You also own a pro-rata share of the amenities and the common areas. You own a portion of the land under the structure your condo is in as well.

A condo association usually manages the building and acts as a board of supervisors. They will typically hire a property management company that deals with maintenance and communication with residents.

When you buy a condo, you hold the title to your unit, but you share ownership of common areas. You usually pay a monthly fee if you’re in a condo building with an association. This fee covers the expenses and budget of the association.

You pay your own utilities, maintenance, and property taxes. Depending on the community, you may also pay for exterior maintenance.

Condos can be especially popular in expensive or trendy places. In big cities and very in-demand places, owning a single-family home may be completely out of reach, so condos are a feasible alternative.

Comparing a Condo and a House

A condo is going to typically be cheaper than a house. This is because you’ll usually get less space and probably not have your backyard.

You might end up paying a higher interest rate for a mortgage on a condo, and you may also need a 25% down payment if you don’t want to pay private mortgage insurance. It’s only 20% off if you buy a single-family home.

The reason for these differences is that lenders see condos as a more risky investment than single-family properties.

Lenders are super cautious about giving out loans for condos. Often, they’ll require a certain percentage of the units in the building are occupied.

Another restriction a lender may impose is on how many condos can be owned by a single investor. Lenders usually don’t want one person owning more than 10% of a building’s units.

The loan-to-value ratio can be tougher if you want to buy a condo. The LTV ratio is how much your condo is worth versus what you owe.

Do Your Research

Before buying a condo, you need to go to at least one HOA meeting and research it. You should also talk to neighbors about their feelings regarding how the building is managed. Read the bylaws carefully. You can request the minutes from recent board and member meetings and find out how much dues for the HOA have gone up.

Another place to research is the litigation history of the board.

If there are pending lawsuits, you probably don’t want to get involved in this. Even condo associations have gone into bankruptcy because of unpaid dues.

You should see how big of a reserve fund the complex has and how management handles requests and complaints from residents. What about the rules and guidelines—are they so strict that you wouldn’t be happy dealing with them?

If the HOA isn’t receiving dues, lenders may not finance the units, affecting your future resale value.

Because of the potential issues, condos are tougher to sell than single-family homes.

As with any type of home, only you can decide if a condo is right for you, but in making the decision, ensure you’re clear on the pros and the cons.

 

Written by Ashley Sutphin for www.RealtyTimes.com Copyright © 2023 Realty Times All Rights Reserved.

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