If you’ve tried acquiring financing for your investment purchase but can’t get a conventional loan or other solution, like a conventional loan, you...
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:
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.
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:
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:
Before you begin your condo search, you need to find a qualified real estate agent who has extensive experience with the condo market in your area.
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.
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.
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.
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.
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.
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:
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.
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:
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.
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.
If you’re looking for a bridge lender, you should check out Vaster — South Florida’s premier bridge lender. We provide bridge financing for both residential and investment condos and offer flexible terms to borrowers.
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.
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.
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.
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.
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.
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!
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