What Every Condo Buyer Should Know
As prices for single-family homes continue to climb, buyers may be tempted to shift their focus to condominiums. While condos are an alternative form of homeownership, the process of purchasing and maintaining your investment differs in several ways.
Learn what you should anticipate, so you’re not surprised when applying for a mortgage or with upkeep and fees down the road.
What Is a Condo?
Condominiums are dwellings within a multi-unit property. The property itself may use a high-rise or other apartment-style format, feature a series of townhouses or have freestanding units within a monitored community.
Condo residents own their unit and have a say in the community’s common areas, amenities and land. A condo association assists with managing these common spaces, often by collecting fees and contracting out maintenance to a third-party entity.
For this arrangement, you’ll pay property taxes on your unit and be responsible for related utilities and repairs. Meanwhile, condo association fees help maintain the grounds and other common areas. Yet based on the association’s organization, your expenses may exceed these limits. Separate assessments may involve additional fees and condo owners may be asked to take out individual loans to cover the cost of exterior work.
As you explore units and communities, keep these points in mind to understand the true scope of all ownership-related expenses.
Price may be tempting you to redirect your home search to condos. Yet in terms of paying for your dwelling, you should understand the following factors:
- Condos typically have less square footage than the average single-family home and don’t come with a dedicated backyard.
- Mortgages for condos often have a higher interest rate, as lenders consider them a riskier investment.
- Although 20 percent is considered the acceptable down payment for a single-family home, many lenders expect potential condo owners to put down 25 percent. Anything less and you may be required to pay private mortgage insurance (PMI).
- No matter your financial background, a lender might be hesitant to give you a loan due to the number of owner-occupied units in a condo community. Communities appear riskier when investors own 10 percent or more of the units. New communities with the majority of units unsold and those with high fees also seem risky.
- Research Federal Housing Administration (FHA)-approved condos, as conventional lenders tend to follow similar requirements, so you’ll have a stronger chance of getting approved.
Searching for a Condo
As you begin your search, narrow down locations where you’re interested in purchasing a condo and have a clear budget in mind.
Realtors specializing in single-family homes won’t always be experts in this market. If you’re going in this direction, look for realtors who have a steady track record of condo sales.
As you search for condos, discuss any concerns about area communities with your realtor, from financing and building issues to rules for residents and future reselling. You can also take it upon yourself to visit communities you’re exploring and speak with the residents.
You’ll further want to look into:
- The property management company. How diligent are they with repairs and are services spread across multiple communities? While you might keep your interior impeccable, poorly maintained grounds and delayed repairs can affect resale value.
- How day-to-day operations are managed. Does the property management company fulfill this role or does the condo association board have official rules and processes?
- Available amenities and how they’re covered. Aside from the cost of maintenance, look into snow removal and fees associated with gym, pool and outdoor use.
- The age of the building. Older properties tend to require more and costlier repairs.
- Utility connections. Does a problem in one unit affect the entire building?
Look Into the Condo Community
Beyond the property itself, get a sense of how the condo community operates:
- Understand how your condo fees will be applied and when you’ll be expected to pay beyond that amount. Look into how often fees increase and if community members have a habit of not paying their dues.
- Research the community’s reserve fund and compare it to common repairs and upgrades. Anything too little can indicate insufficient repairs or frequent out-of-pocket costs from unit owners. Yet anything too large can affect resale value.
- Learn more about the community’s rules, particularly when it comes to using common areas and noise ordinances.
- Research the condo association and consider sitting in on a meeting to determine how the community is managed, including bylaws.
- Try to determine how responsive the property management company is, what type of services they provide, and if they’re available on weekends and holidays.
- See how frequently the community does special assessments or required projects in which the costs are passed onto the condo owner and may require a separate loan. Fewer special assessments typically indicate a more financially sound community with ample reserves.
- Look into any outstanding lawsuits against the condo association or property management company.
Learn More About Property Insurance for Condos
When it comes to making repairs and filing claims, two general types of insurance policies cover condo communities. Residents take out homeowner’s insurance on their property; this coverage extends to the unit itself. Meanwhile, the condo association uses fees to pay for commercial property coverage to manage and protect the common areas. Make sure:
- The condo association manages commercial insurance coverage for the community and request proof.
- You understand which policy covers temporary housing in the event you’re displaced and which expenses are included. Typically, this will be your homeowner’s coverage, even if the issue relates to a common area or affects multiple units.
As you progress through your search, work with a HUB/Ion Insurance agent to discuss insurance coverage for condos. To get started, contact us today.