Condominiums can provide a stable, amenity-induced living experience at an affordable cost. For a number of people and families, condos offer a better option than a traditional home. However, it’s important to understand what you’re getting into before you take the plunge. Condos are quite different from the single-family dwellings you may be used to. Read on to learn more about what goes into owning and buying a condo.
A financial advisor can help you create a financial plan for your home buying needs and goals.
What Is a Condo?
First off, it’s important to know exactly what a condo is. Condos are individually sold units within a communal living complex. They often look just like apartment buildings. Unlike apartments, however, you own your private condo unit. All the common areas, like tennis courts, lounges or pools, are collectively owned by all the complex’s residents.
Condos tend to be especially popular in spots with high property values, like big cities or popular vacation destinations. Condos can be a great option for potential homeowners who can’t quite afford a house but want to own some real estate. They also offer conveniences that might be difficult to afford individually, like the maintenance of a pool.
Purchasing a condo is like joining a business arrangement with all the other people who own condos in the building. Because of this, condos have their own homeowners associations. This body puts rules in place to maintain the upkeep of both the building and neighbor relationships. Each condo complex will have their own rules and restrictions. You should be well aware of those before you buy a condo and find you can’t live with their rules.
What to Know About Buying a Condo
In addition to a condo’s rules, you should also be aware of the condo association’s budget. That way you can know what kind of money you’ll need to contribute, as well as where the money is going. It helps to look at the budget to make sure that they’re putting enough money towards thing like building repairs. Also take note of any outstanding debt owed to the association and if there are owners who aren’t paying their dues. If an association refuses to share their budget with you, consider that a major red flag.
The association will also have a reserve fund to cover expenses that crop up like major repairs. Without the right funds in place, associations can charge owners “special assessments” to cover costs. The older the property and the less cash reserves it has, the higher the chances you’ll be hit with these charges. When looking at a condo complex, you may want to ask about upcoming projects and how they plan to fund them.
Condo insurance differs from the homeowner’s insurance you might be used to. The condo association will have a master insurance policy in place, but these will differ from building to building. You or your home inspector should review the policy thoroughly. That way you know exactly what you’ll be responsible for. You wouldn’t want to end up with repair costs that the association insurance won’t cover.
Steps to Buying a Condo
|Financing||You need to apply for a mortgage to purchase a condo just the same as a single-family home. Your lender will likely review the condo board documents and building operations.|
|Insurance||Homeowners insurance protects your house from losses from disasters such as fire or theft. Condo insurance will need to cover your unit, rather than the entire building. The common areas have a master policy you help pay for through homeowners association fees.|
|Condo Board Approval||Some condos require potential buyers to interview with the association board. This could include character references and a review of your financials, similar to the co-op approval process.|
Pros and Cons of Buying a Condo
- Upkeep not your responsibility
- Close neighbors
There’s definitely an appeal to buying a condo that comes with amenities like a swimming pool or tennis courts. You won’t have to manage the upkeep of those amenities yourself, nor care for the lawn or garden. Condos also come with a great built-in opportunity for a resident’s social life. Neighbors are closer, and with access to the same building features, you can easily make friends.
Condos tend to appreciate at a slower rate. Whether this is a plus or minus for you will depend on your usage of the condo. But this does mean that condos could be more affordable than other dwellings in the same area. Owning a condo also means that you can take advantage of homeowner’s tax deductions on your mortgage (if you have one). However, you will also have to pay property taxes on your condo unit.
- Association fees
- Slower appreciation
- Association rules
As any living situation does, condos also have their drawbacks. For one, if you’re not a more social person, you may not like having to share communal spaces or even walls with your neighbors. The fees that come with owning a condo may put a damper on things, as well. If an association doesn’t have enough reserve funds, you and other residents could get stuck with a big bill to cover repairs.
You’ll want to make sure the association has their business in order, and that their rules align with your expectations of a living space. Many complexes can have rules like quiet hours after 10 p.m. or no pets. Others will dictate the length of your grass and whether you’re allowed lawn ornaments. Same goes for how many cars are parked in your driveway. Condo associations can have all sorts of nitpicky rules; it’s up to you whether the choice makes sense for your lifestyle.
Careful research into the ins and outs of condo life can help you make a more confident decision about buying a condo. It helps to ask condo associations and even condo residents about the property you’re looking at. Better to find out about issues before you’ve bought the condo and moved in. You want to make sure that you’re buying the right type of property for you. Condos aren’t better or worse than other housing types. But you’ll have to determine if the style – and specific property – is right for you.
Next Steps for Buying a Condo
- If you want to move fast, get lender preapproval. This means gathering up all your financial documents (tax returns, W-2s, pay stubs, bank statements etc) and contacting your lender of choice.
- Before checking out a condo in person, verify that the association fees are within your budget. Some properties charge much more for common fees than others; it’s not standard across condominium developments. Many real estate listing sites will have a section marked “HOA” with the monthly charge.
- Get familiar with condo agreements/declarations. These documents outline how the condominium operates and how it’s governed. You can see if any of the rules or guidelines won’t work for you before committing to a place.
- Get a trusted financial professional on your side. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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