Buying A Condo: What You Need To Know

When you are looking for a new place to live, you have several options — each with their own pros and cons. Buying a condo can be a great first step into homeownership if you’re intimidated by a larger single-family house, or a smart choice if you’re looking to downsize. Before you dive into a purchase, it’s important to understand how buying a condo is different compared to purchasing a single-family home.

Here’s what you need to know about buying a condo.

What Is A Condo?

Whether you call them condos or a condominium, a condo is a type of housing or residential complex with separate units – each unit is owned by an individual, or homeowner. The owner is responsible for their unit, including maintenance and repairs.

Condos typically have shared common areas like outdoor space or hallways – the condo association is typically responsible for maintaining these areas. Other areas include the complex exterior and building amenities such as a pool or gym. To maintain and upkeep these areas, condo owners pay recurring fees to the condo association.

Unlike the owner of a single-family home, who owns the house inside and out, as well as the property it sits on, a condo buyer only owns the interior of their unit and, as a member of the condo association, a prorated portion of the common areas and underlying property.

Condos come in all shapes and sizes — regional differences might conjure different images, as could urban versus suburban living.

Condo Vs. Other Popular Home Types

Condos share some similarities but also some key differences to other types of housing. Here's a look at how condominiums compare to other popular home types:

Is Buying A Condo The Right Move For You?

When you’re considering buying a condo, it’s important to assess the lifestyle you currently have and whether you would enjoy living in one. There are benefits and drawbacks to this living situation — it’s up to you to decide if the pros outweigh the cons.

For instance, you’ll be in close proximity to your neighbors. It might not be a big deal if you’re used to being in an urban area, but a potential negative if you prefer quiet spaces.

Take a look at some of the factors below to determine whether you should consider owning a condo.

Pros Of Buying A Condo

• Lower purchase price — Condos typically cost less compared to single-family homes, though it depends on the size and location. These lower costs make it more affordable for those looking to become a homeowner or to reduce their expenses in general.
• Fewer maintenance requirements — One of the major benefits of condo ownership is that it’s more low maintenance than owning a single-family home. Condo units can be smaller than single-family homes, and you’re only responsible for the maintenance of your individual unit. In general, exteriors and common areas are the domain of the condo association.
• Amenities — Many condos offer amenities such as a pool, gym, or private spaces to celebrate events. It’s great for those who may not be able to afford these amenities otherwise or wouldn’t have access to them in close proximity.

Cons Of Buying A Condo

• HOA restrictions — Living in a condo complex means that you have to follow the rules of the homeowners' association (HOA) (sometimes referenced as a condo association). Depending on your HOA rules and the whims of the HOA leadership, this may be more restrictive than you would prefer.
• HOA fees — All the amenities that come in a typical condo complex don't come for free. You'll usually pay a monthly HOA fee to cover amenities and maintenance, and may also be required to pay one-time assessments for larger items.
• Less privacy — When you live in a condominium complex, you're much closer to your neighbors. You'll have less privacy than you would with a detached single-family home.

Financing Options For Buying A Condo

Financing a condo works the same way that financing a regular home does – via a mortgage payment. There are several different loan types that you can use to buy a condo:

• Conventional loans: A conventional loan is a mortgage that isn’t backed by the government. Conventional loans can be either conforming (following guidelines from Fannie Mae and Freddie Mac) or nonconforming.
• VA loans: VA loans are offered exclusively to members of the U.S. Military who meet certain criteria. The Department of Veterans Affairs (VA) guarantees a portion of VA loans, which helps borrowers to qualify for better loan terms than they might otherwise get.
• USDA loans: The USDA rural development program has been helping rural families become homeowners since 1991. The U.S. Department of Agriculture provides backing for the USDA loan program to help families with low or moderate incomes buy homes.
• FHA loans: An FHA loan is a mortgage backed by the Federal Housing Administration (FHA). An FHA loan is generally issued by a traditional lender such as a bank or credit union, but insured by the U.S. government through the Federal Housing Administration

Which type of loan is right for buying a condo will depend on your specific financial situation. Talk with your mortgage lender to see which options might be right for you.

How To Buy A Condo

The process to purchase a condo is similar to buying a single-family home. You’ll most likely have to tour multiple properties to find one you’ll want to live in. That being said, there are some differences, such as the fact that condominium properties have an on-site sales office.

Here are the general steps on how to buy a condo:

1. Start The Mortgage Approval Process

Getting a mortgage preapproval before you begin looking at condo properties is important, especially in a seller’s market. That’s because it shows sellers you’re serious about buying and you have the means to do so.

When applying for a preapproval, you’ll want to take some steps, including:

• Getting your paperwork organized
• Improving your credit score
• Saving for your down payment and closing costs

Don’t apply for preapproval until you’re ready to buy a condo, since preapprovals tend to expire within a month or two.

2. Make An Offer

When it comes to making an offer, you’ll want to be sure the home is for you, and that you’ve thought it out. Your real estate agent should be able to help you through this process. If you’re buying in a competitive market, you’ll want to make sure your offer is aggressive and has the highest chance of outbidding other potential buyers.

3. Negotiate A Purchase Agreement

Once the condo owner accepts your offer, it’s time to ensure everyone agrees on the purchase agreement. This is a legal document outlining the condo purchase, including information such as the price and when the expected closing date will be. There will also be contingencies, which are clauses stating that certain events need to happen or the buyer can back out of the sale. You’ll also decide on the amount of earnest money to offer, which is money deposited into an escrow account showing you’re serious about buying the condo.

4. Do Your Due Diligence

As we’ve discussed, there are different concerns when buying a condo versus a single-family home. It’s important to understand the role of the condo association of the property, the condition of the unit and the property as a whole.

5. Close On Your Condo

Before you close on the home, you’ll receive a closing disclosure outlining the conditions of your mortgage including the interest rate, closing fees, and other items of importance. Take the time to review it and ask questions prior to closing.

4 Helpful Tips For Condo Shopping

Here are a few tips and tricks that you should keep in mind when buying a condo:

1. Find A Real Estate Agent With Experience In Condo Sales

Finding and working with a trusted real estate agent who is experienced in condo sales is important because this person is meant to work on your behalf. Having someone who is experienced will help you when it comes to recommending properties, guiding you on what to look for (like in a condo association) and walking you through all the paperwork needed during the closing process.

2. Ensure Access To Your Desired Amenities

It’s important to know which amenities are a priority to you as you shop for a condo. Different condos come with different amenities, so you'll want to make sure that the condominium you’re considering has these amenities.

3. Familiarize Yourself With The HOA Fees

Along with the amenities at each condo complex, you should familiarize yourself with the condominium’s homeowner association rules and fees. Different complexes may have wildly different fees even if they have similar amenities. Make sure you understand what the HOA fees are and what they do (and do not) cover.

4. Understand The HOA Rules

When you buy a condo, you're also joining a condo association that has established rules, practices and bylaws. Even though you will have legal ownership of your particular condominium unit, you'll still be subject to the HOA rules. It's important to understand what these rules are and what you will (and will not) be able to do with your unit before you make a purchase.

Is Buying A Condo A Good Investment?

A condo can be utilized as your primary residence, a vacation home and/or for investment purposes, such as a rental property. Here are a few pros and cons of investing in a condo:

Potential Advantages Of Investing In A Condo

• Lowering your tax bill — owning real estate can come with tax benefits. This might help you to lower your overall tax bill.
• Affordability — Condos generally are more affordable than single-family homes in the same area. So if you're looking for a more affordable real estate investment, investing in a condo could be a good option.
• Potential for the condo to increase in value if it’s in a good area — Another benefit of owning real estate is potential appreciation. While real estate is not guaranteed to appreciate, if you choose a good condo in a good location, its value may increase over time.

Potential Drawbacks Of Investing In A Condo

• Lack of property  — when you buy a condo, you generally don't own much if any of the surrounding land. This lack of property may decrease your condo's desirability and value.
• Potential for the condo to not increase in value over the years — Although real estate has historically appreciated in value, that is not always the case. Also keep in mind that appreciation for condos may differ from appreciation of single-family homes, even in the same area.
• Possible difficulty acquiring a loan — It may be more difficult to get a loan for a condo than it is to get a loan for a single-family home. Make sure to talk with your mortgage lender to make sure you qualify for a condo loan.

The Bottom Line

It’s important to understand, beyond the many attractions of condo living, that ownership still means you’re responsible for the maintenance and repair of your unit. You’ll pay fees to a condo association in exchange for amenities and property maintenance outside of your unit.  Buying a condo can be a great choice for those looking to downsize or who prefer to own their own home without the type of maintenance that comes with owning a single-family home.

Ready to buy your condo? Start the approval process with Rocket Mortgage® today.