Condo Buying Guide – Pros and Cons and Financing Considerations
Thinking of buying a condo? Owning a condominium can provide numerous benefits to a wide variety of home buyers. It can also come with a few drawbacks. Also, financing the purchase of a condo can come with a few extra hurdles to clear when compared to getting a mortgage for a traditional stand-alone house. In today’s post, we’ll dive into the condo buying process, explore the pros and cons of condo ownership, and provide a simple overview of our condo loan programs.
Financing a Condo Purchase
Taking the HOA into Account
Financing a condo is a lot like financing a regular stand-alone house; however, when it comes to getting a condo loan, there may be additional requirements that are unique to condominium housing. For example, when you apply for condo financing, the lender will examine your financial information plus the finances of the condo community/homeowners association (HOA). The lender will look at things like the ratio of rental units to owner-occupied units, the amount of money in the HOA’s account, how many owners are delinquent with their HOA dues, if there are any lawsuits or pending lawsuits involving the HOA, etc. All of these factors can affect the status of your condo loan; unfortunately, there isn’t anything you as the buyer can do about them. This is one of the downsides to buying a condo. However, if you find a condo community that is thriving financially, has a large percentage of owner-occupied units, and does not have any legal issues surrounding it, you could potentially find yourself in a desirable position to finance a very valuable home.
Loan Guidelines May Vary by Program
With condo financing, the eligibility guidelines can vary based on the type of loan. For instance, a conventional condo loan will likely require at least 20% down and a credit score of around 620. With an FHA condo loan, the borrower will likely only need to put 3.5% down and their credit score can usually be lower. Rules for borrowers’ income may also vary depending on the loan program. USDA loans for example are intended to help low- to moderate-income residents achieve homeownership in less developed areas. Although condos are one of the eligible property types for a USDA loan, it is possible to make too much money to qualify. To determine the best condo loan program for your situation, connect with one of our experienced loan professionals.
Pros and Cons of Owning a Condo
Let’s compare the benefits and drawbacks to condo ownership, starting with the good stuff:
- Lower Maintenance Living – Condo owners are responsible for the upkeep and maintenance of what is within their walls. Roofs, gutters, exterior paint, landscaping, yard work, parking, and community common areas are all usually cared for by the HOA. This makes condo ownership a popular choice among retirees, busy professionals, or anyone without the means or desire to take on a lot of exterior home upkeep.
- Amenities – Most condo communities offer at least a few desirable amenities like swimming pools, tennis courts, walking trails, fitness center, clubhouse or outdoor grilling areas. Some condo developments even include community social events to help neighbors get to know one another.
- Presence of HOA Prevents Blight – One of the major roles of an HOA is to monitor the property’s appearance and prevent blight. Having an HOA can deter lazy or slovenly neighbors from doing things that may compromise the appearance or value of the property. Different HOAs will have different rules and bylaws regarding what is allowed and what isn’t, so it’s important to read up on them before you purchase. Ask your real estate agent for a copy of the CC&Rs (Covenants, Conditions & Restrictions) as soon as you find a condo you’re interested in purchasing.
- More Affordable? – Buying a condo may be more affordable than buying a typical stand-alone house in some markets. Naturally not all areas of the country will offer the same value, but in many places a condo may provide more square footage for the money than a house would. Discuss this with your real estate agent, as they should be familiar with the real estate prices in your area.
- Lower Utilities and Other Housing Costs? – With a condo, homeowners may be off the hook when it comes to things like lawn care costs, gym membership, etc. because these things could be included in their HOA dues. Likewise, condos may be cheaper to heat and cool, helping the owner save on monthly utilities.
Now let’s talk about the not-so-great aspects of owning a condo:
- Close Quarters Living – Some condominiums are set up just like apartments, with neighbors sharing walls and the units themselves surrounded by other units above and below. This type of living arrangement can make some people uncomfortable. Others don’t mind and even enjoy having neighbors close by. So this one could be seen as a pro or a con, depending on your personal preference.
- HOA Restrictions – We mentioned how having an HOA can help protect a community, but in all fairness, we should warn borrowers that HOAs may also enforce certain restrictions. For instance, if you own a camper or a ATV, you may not be able to leave it parked it in your condo’s parking lot. If you want to paint your shutters, the HOA may not approve your color choice. You may find that installing a satellite dish is against the rules, leaving you with limited choices for television service. These HOA restrictions can be seen as imposing and overly regulatory to some. Others may not mind the rules and find them helpful in maintaining the property’s value and aesthetic. Again, it could be a pro or a con depending on your point of view.
- Can be Difficult to Sell – Remember how we said condo financing is often contingent upon the community’s financial status, insurance policy, ratio of owner-occupied units, and so forth? Well, if your condo community falls short in any of these areas, it can make it harder to resell your condo when you’re ready. And since you have little to no control over these issues, it can be frustrating when trying to place your condo on the market. This is why it’s important to research a condo community’s HOA and the associated community statistics before you buy.
Keep in mind that this is just a partial list of pros and cons to help you make a more educated decision when it comes to buying a condo. Not everything mentioned in this guide will apply to every borrower. Each person’s needs, budget and tastes are different, so it’s best to do the research, work with a professional who can guide you, and find out which housing option makes the most sense for you.
Ready to learn more? Give us a call.
If you’re ready to explore some of our condo financing options, please call us at (800) 405-7941 to get started.