Buying a Condo vs. Buying a Townhome

Due to skyrocketing housing costs, many people simply assume that homeownership is out of their reach. Condos and townhomes could provide first-time homebuyers and investors with great real estate opportunities

Here’s everything you need to know about buying a condo, buying a townhome, and how to choose between the two based on your needs:

What Is a Condo?

A condominium or “condo” for short is a larger building that’s divided into smaller, individually-owned units. Condos may look similar to apartment buildings, but instead of each unit being rented, they’re privately owned.

Even though these units are owned, it’s important to note that owning a condo doesn’t come with any actual land ownership since the land is shared. Instead, the owner is only responsible for their individual unit and the rest of the complex is typically managed by a condo association that handles everything from upkeep to amenities to the exterior.

What Is a Townhome?

A townhome is generally classified as a narrow, multilevel residence that’s attached to other residences on at least one side. Townhomes can come in many different forms, including single-story units and duplexes with just a single neighbor.

The main difference between a condo and a townhome comes down to land. With a townhome, the homeowner usually owns the land that the unit is located on, including any yard space and the exterior of the unit.

What Are the Pros and Cons of Buying a Condo?

Here are the pros and cons of buying a condo to help you make an informed decision when purchasing your new home:

Pros

Cost: If you want to purchase your first home but are looking to save money, then a condo is definitely your best bet. Condos are the cheapest housing option with lower prices than both townhomes and single-family homes, with the median price of a condo being nearly $100,000 less than that of a single-family home at $266,300 compared to $362,600.
Amenities: Condos are also a great option if you’re looking for all the amenities of an apartment building, except you’re paying your mortgage and building equity instead of throwing away rent to a landlord. Some common condo amenities include pools, clubhouses, tennis courts, fitness centers, and basketball courts.
Responsibility: Condos also provide a great introduction to homeownership because they come with less responsibility and maintenance compared to a single-family home or even a townhome. With a condo, you’re only responsible for what’s inside your unit. You don’t have to worry about things like the lawn, roof, siding, etc. that can be expensive and time-consuming.

Cons

Space: Condos typically come with limited space. For example, it’s not uncommon to see a one-bedroom, one-bathroom condo with around 800 square feet. As a result, condos may not feel like much of an upgrade compared to apartments in terms of size.
Privacy: Condos may not also feel like much of an upgrade from an apartment in terms of privacy. Unless you’re located in a top, bottom, or corner unit, you’re going to have neighbors on all sides.
Fees: Even though you don’t personally have to worry about maintaining anything outside of your unit doesn’t mean that these services are free. Instead, you pay for them through condo fees that can range from a couple hundred dollars to a couple thousand, depending on the amenities in your complex.
Restrictions: Condo complexes are managed by associations that set strict rules for residents. For example, there might be noise rules, pet rules, occupancy rules, and more. These restrictions may also make you feel like you’re still renting and don’t have total control over your unit.

What Are the Pros and Cons of Buying a Townhome?

Now let’s talk about some of the pros and cons of buying a townhome so that you can weigh your different options:

Pros

Size: Townhomes are typically larger than condos since they usually span multiple stories. For example, a typical townhome would include at least two bedrooms and two bathrooms, whereas a condo of the same size would be considered large.
Privacy: Townhomes tend to be more private than condos since there’s no one on top or below you. Instead, you just have neighbors on the sides — and if you get an end unit, you only have a neighbor on one side.
Outdoor space: Townhomes may come with a small portion of land in the front and/or back of the unit. Alternatively, condos may only come with a small patio space rather than actual yard space with grass, plants, trees, etc.
Land ownership: Townhomes usually come with actual land ownership, especially when they include outdoor spaces. This is in contrast to condos that don’t come with any land ownership at all.

Cons

Price: Since townhomes tend to come with more space — both inside and out — they typically cost more than your average condo. However, they still cost less than a single-family house.
Fees: Townhomes, like condos, usually come with homeowners’ association fees that cover the yard maintenance and community maintenance, including any amenities. Note that these fees don’t cover the exterior of the building — instead, that’s the responsibility of the homeowner.
Restrictions: Also like condos, townhomes tend to come with more restrictions thanks to the existence of homeowners’ associations. For example, the HOA may restrict what owners can do with their yards, what colors they can paint their units, etc.

Why Choose a Condo or a Townhome Over a House?

With everything you’ve learned about condos and townhomes, perhaps you’re wondering about actual houses. And while single-family homes tend to be the “default” option when it comes to homeownership, they’re not ideal for everyone.

Here are some reasons why you may want to choose a condo or a townhouse over a single-family home:

Cost: Choosing a condo or a townhome over a house can save you a lot of money — both upfront for the initial purchase and overtime for maintenance.
Responsibility: Choosing a condo or a townhome over a house comes with less responsibility. It tends to be a good introduction to homeownership. You can slowly ease into it rather than jumping into a single-family home and quickly becoming overwhelmed by how much work (and money) it takes to maintain it.
Amenities: Choosing a condo or a townhome over a house often provides you with access to better amenities. While some single-family neighborhoods provide amenities like pools and fitness centers, this certainly isn’t the default. Meanwhile, these amenities are often expected for condos and are common with townhomes.

Which One Is Best for You?

Now that you know all about the pros and cons of condos and townhomes, it’s time to make your final decision based on your budget, wants, and needs:

You Should Buy a Condo If…

You don’t need a lot of space. Condos are perfect for single people or married couples with no children.
You don’t want to deal with a lot of maintenance. Condos are ideal for people who aren’t looking to spend their weekends fixing up their homes while depleting their savings accounts in the process.
You don’t want to spend a lot of money. Speaking of savings accounts, if you don’t want to spend several hundred thousand dollars on a townhome or single-family home, then a condo is a great and affordable choice.

You Should Buy a Townhome If…

You need more space. Townhomes are perfect for married couples and young families. Additionally, they are great for pet owners since they often have yards.
You want more privacy. Townhomes are also ideal if you’re sick of the apartment life and are looking for more privacy and a true space of your own.
You’re looking for a starter home. Townhomes are the perfect starter homes for homebuyers looking for more space and privacy but without all the responsibilities that come with full-fledged home ownership.

How Can You Finance a Condo or a Townhome?

Depending on your lender and desired loan type, financing a condo or a townhouse may look exactly the same as financing a single-family home. However, financing a condo becomes a bit more complicated if you’re using an FHA loan.

Since FHA loans are backed by the federal government, these loans have to meet certain standards, including:

The condo has to be on the FHA-approved condo list
At least 80% of all FHA loans in the condo complex must be owner-occupied
At least 50% of all units in the condo complex must be owner-occupied
No more than 50% of all units in the condo complex mat be FHA-insured
No more than 35% of the entire building or complex can be non-residential space
The building or complex has to be completed for at least a year, and no other phases can be pending

Alternatively, there are conventional loans that come with higher qualification requirements than FHA loans but also come with fewer restrictions. If you’re looking for the most efficient, accessible, and convenient loan option for your condo or townhome, you should definitely consider a bridge loan.

A bridge loan is a short-term loan that typically doesn’t last for longer than a year. During the term of the loan, the borrower only makes payments on the accrued interest before the remaining amount becomes due at the end of the term. By that time, the borrower should have secured permanent financing to pay off the bridge loan.

What If You’re Looking to Invest in a Condo or Townhome?

Condos and townhomes make great investment properties since people are always looking for units to rent out. This is especially true if the units are located in a highly desirable area like a big city. However, investment financing is quite different from primary residence financing.

For starters, you’re not able to use government-backed loans for investment financing, which means that FHA, USDA, and VA loans are off the table unless you’re willing and able to live in the unit for at least one year. Conventional loans tend to come with that same stipulation unless you make it clear to the lender that you’re purchasing an investment property at the time of application.

In that case, you will likely have to put more money down than you otherwise would have to. You may also receive a higher interest rate. Again, these restrictions make bridge loans a great option for both primary residences and investment properties.

Conclusion

When you work with a flexible private lender like Vaster, it’s easy to secure financing for your condo or townhome whether you plan to live in the property yourself or use it as an investment property.

To learn more about Vaster’s loan options and terms, reach out to one of our lending experts.