With the prices of single-family homes skyrocketing, many buyers are understandably turning to condos. However, the process of buying a condo differs from that of a single-family home.
So let’s clear up these differences with this comprehensive guide to buying a condo:
What Is a Condo?
A condo or condominium is a single unit located within a property with multiple different units that are all individually owned. Condos can range from high-rise buildings with thousands of units to a walk-up building with only a few units.
Condos are unique because instead of purchasing land as you would with other real estate transactions, you’re only purchasing the unit itself. Outside your unit are common spaces that are shared by all residents. These common spaces may include amenities like clubhouses, fitness centers, and even pools.
These common spaces are then maintained by the condo management company, to whom residents pay fees on a monthly basis to cover the maintenance and upkeep of the entire property.
Should You Buy a Condo? Pros and Cons To Consider
Purchasing any type of real estate comes with both pros and cons, and condos are no exception. Here’s a breakdown of some of the pros and cons so that you can make an informed purchasing decision:
Pros of Buying a Condo
No exterior maintenance: Perhaps the biggest pro of buying a condo is that you don’t have to perform any exterior maintenance. When you buy a single-family home, you’re solely responsible for all the yard work in addition to the maintenance of driveways and sidewalks. Additionally, many condo communities handle things like roofs and exterior siding, so if there’s a leak in the roof or the siding needs to be repainted, it’s not your responsibility.
Lower purchasing price: Condos often come with a lower purchasing price, making them more affordable for lower-income or first-time buyers. For example, in Florida, the median price for a townhouse or condo in 2020 was $215,000. At the same time, the median price for a single-family home in Florida was $290,000.
Accesstoamenities: Many condo complexes provide you access to tons of amenities you likely wouldn’t have access to in a single-family home. For instance, your condo complex might have a heated pool and spa with chaise lounges and umbrellas. There might also be an outdoor grilling area with picnic tables. In high-end complexes, amenities like fitness centers, spas, cafes, and valet parking are commonplace.
Betterlocation: Condos are popular in big cities where it often makes sense to build up instead of out due to limited space. Buying a condo could provide you with a more urban lifestyle with easy access to all that city living has to offer, including the best restaurants and entertainment options, all within walking distance.
Sense of community: Since you’re so close to your neighbors in a condo complex, there’s more of a sense of community. Some condo complexes also host events for residents where it’s fun and easy to socialize with your neighbors and build relationships.
Cons of Buying a Condo
More restrictions: Buying a condo may come with more restrictions in terms of what you do and how you live since you only own your individual unit rather than the entire property. Additionally, condo associations often have strict rules about the appearance and maintenance of the units. For example, you may not be able to remodel your condo the way you want by adding wooden floors. You may not be able to put certain things on your balcony. You may not even be able to have pets.
High condo feesand mortgagerates: Even though you may be able to initially save money on the purchase price of a condo, you may end up paying more in terms of condo fees and mortgage rates. In condo complexes with lots of amenities, it’s not uncommon to see monthly fees in the quadruple digits. Furthermore, mortgage rates for condos are usually higher than single-family homes since lenders see them as riskier.
Slowerappreciation: Lenders see condos as a higher risk since condos don’t tend to appreciate as quickly as single-family homes do. The condo market is also more sensitive than the single-family home market, so it might be harder to sell your condo when the time comes.
Limited privacy: Since you’re right on top of your neighbors in a condo complex, there’s limited privacy. You’re more likely to run into your neighbors on a regular basis. You also have to share things with them that you otherwise wouldn’t like elevators, stairways, pools, etc.
Potential issues with neighbors: Even though you could have great neighbors in a condo complex, you just as well could have bad neighbors. And in a condo complex, you’re more affected by the choices of your neighbors than you would be in a single-family home. For instance, your neighbors could cause issues by playing loud music late at night or stomping around.
Influx of renters: Renters in a condo complex are less likely to be invested in the maintenance of the community since they’re only there temporarily. They are also less likely to want to participate in community events and build relationships with neighbors if they’re going to move in a year.
Limited parking: Most condo complexes allocate one or two parking spaces for each unit. If you have more cars than allocated spots, that could be an issue. Guest parking is also an issue at many condo complexes without clear parking spots designated for guests.
Limited storage: Although condos are cheaper than your typical single-family home, they’re also usually smaller and come with less storage space. In a single-family home, you might have a garage or attic that you can use for storage or even a shed in the backyard. In a condo, however, you may have a couple of closets.
How To Buy a Condo?
If, based on these pros and cons, you’ve decided that buying a condo is the right move for you, here’s what you need to do to make it happen:
The condo market is very different from the single-family market, so it’s important to find an agent that is familiar with the condo market and can help you find what you’re looking for.
Step 2: Look at Condos in Your Area
Once you have the right agent, you can start looking at condos in your area. When you look at potential condos, it’s important to not just look at the actual unit for sale but to look at the entire community.
Check out the amenities offered by the complex and the parking situation. Take note of the cleanliness and maintenance of common areas and the building’s exterior.
Step 3: Research the Condo Management Company
If you’ve found a unit or overall complex that you like, you should dig a bit deeper into the condo management company. Not all management companies are created equal.
Unfortunately, some condos tend to be poorly managed by poorly-run companies. Since you’re going to be paying association fees, you want them to go towards a professional company that is going to properly maintain the complex.
Step 4: Look Into Potential Special Assessments
After looking into the management company, you next need to look into any special assessments. Special assessments are charges associated with a significant complex improvement project.
Although special assessments are usually voted on before they’re put into place, it’s still nice to know what’s coming and if you’re going to have to pay extra for any special projects.
Step 5: Submit an Offer
Now that you have all the information about both the complex and the individual unit, you should feel confident about making an offer. Have your real estate agent write up an offer for the unit.
And while the condo market can be less competitive, that’s not always the case. You should make an appropriate offer based on how long the unit has been on the market and how desirable the unit and complex are.
If the unit has been on the market for an extended period of time, you should be able to submit an offer below the asking price. However, if the unit has just come on the market and is in a particularly popular complex or comes with high-end features, then you may want to consider submitting an offer at the full asking price.
What Do Lenders Look for in a Condo?
Lenders see condos as riskier than single-family homes, and as such, have set requirements as to the types of condos they are willing to finance.
While exact requirements vary by lender, here are some things that lenders look at when financing a condo:
Number of units purchased
Number of units that are not owner-occupied
Lawsuits involving the condo association
Number of unit owners who are delinquent on association dues
Any upcoming special assessments
Based on this information, lenders are more likely to approve financing if the complex has more than 50% owner-occupancy if the complex is more than 90% occupied and if no more than 15% of owners are delinquent on association dues.
How To Finance a Condo?
Now that you’ve found the right unit in a great complex, thanks to your real estate agent, it’s time to secure financing for your condo.
Here are five steps to follow to finance your condo:
Step 1: Choose the Type of Loan You Want
First of all, you need to choose the type of loan you want to use to finance your condo, as there are several different types to choose from. Of course, there are conventional loans that tend to have lower interest rates and require a down payment of at least 3%.
There are also government-backed loans like FHA loans that are more accessible but come with more restrictions in terms of which complexes and units are eligible.
Alternatively, bridge loans are a unique type of temporary financing designed to bridge the gap between closing and securing permanent financing. If you’re looking for a flexible loan that’s able to close quickly, then a bridge loan might be the right choice for you.
Bridge loans are often provided by private lenders that don’t have to follow the same restrictions as traditional lenders. They can also expedite processing timelines to close in a matter of days rather than weeks.
Step 2: Find a Lender
Once you have a better idea of the type of loan you want to use to finance your condo, you need to find a lender that offers that type of loan.
For conventional loans, it’s pretty easy to find a lender. For FHA loans, it can be more challenging. And for bridge loans, it can be difficult since it’s a specialized loan product.
Our mortgage experts have decades of combined experience and are always ready and willing to answer your questions and help you secure financing to purchase your condo.
Step 3: Apply for the Loan
Now that you’ve identified a lender, it’s time to actually apply for the loan. Come prepared with all requested financial documentation, including pay stubs, bank statements, W-2s, and income tax returns.
Fill out the application completely and honestly. After all, the lender is going to verify all the information you put down on your form, so it’s best to be upfront about your financial situation to avoid issues later on.
Step 4: Clear the Underwriting Process
After submitting your application, the lender will then verify and process it. For example, they will run your credit report and look into your credit history. They will verify your employment with your employer. They will verify your bank statements with your bank.
The lender will also order an appraisal for the condo unit you’re looking to buy. This helps make sure that the lender isn’t giving you more money than the unit’s actually worth.
A professional appraiser will come to look at the condo and the entire complex as a whole. Then they will make an assessment of the condo’s value based on the sales prices of similar units that have been recently sold.
If you clear the underwriting and appraisal processes, you’ll be all set to close on your condo.
Step 5: Close on the Loan
The final step in the process is closing. This is when you pay your closing costs, finalize your loan documents, and transfer ownership of the unit.
Come prepared with the proper documents, including certified funds for your down payment and closing costs. From there, you get the keys to your condo and can move right in.
How Much Does It Cost to Own a Condo?
The costs of owning a condo can be less straightforward than owning a single-family home. So let’s calculate just how much it actually costs to own a condo so that you can be financially prepared to take this step.
Say you purchased a condo unit right at the median cost of $215,000 with the 3% minimum down payment of $6,450. And let’s say that you receive an interest rate of 3.5%. Only taking into account interest and principal, your monthly payment would be $936.
However, there’s more to your monthly payment than just principal and interest. You also have to take into account taxes, insurance, and association fees. So let’s say your property tax rate is 1% a year, which amounts to $2,150 a year or $179 a month. And let’s say that your insurance costs $1,000 a year or $83 a month. Finally, your condo association fees are $500 a month.
When you add together principal, interest, taxes, insurance, and association fees, you’re left with a monthly payment of $1,698. While this might seem like a lot, it’s important to note the money that you’re saving by not having to worry about exterior maintenance costs, including lawn, roof, and siding maintenance.
Buy a Condo With Vaster
Buying a condo can be more complicated than buying a single-family home, but it doesn’t have to be with Vaster.
Vaster makes it easy for you to finance the condo of your dreams, thanks to our flexible terms and quick closing timelines. So get the process started today by filling out an online application!