A condominium is a home, isn’t it? So why would getting a loan for one be any different than a single-family home? Well, the differences for financing your purchase of a condo may surprise you...
Condominiums, or condos for short, are individually owned units within a larger building. This is different than renting a unit in an apartment complex, as you privately own that specific portion of the structure you reside in.
Everything else — the building’s exterior and shared areas — is owned or managed by a condominium or homeowners association (HOA). This is a group of individuals working together to manage and maintain the building your condo resides in, including the creation and enforcement of building rules.
It’s important to note these rules may limit what you can do with your home, such as the type of remodeling projects you can do and the number of pets, or even the type of pets, you can own (if any).
To put it simply, if you decide to own a condo, you will need to...
Despite all this, condos are popular amongst first-time buyers because they are often more affordable than single-family homes over time. Not to mention, they are less time-consuming or demanding with the HOA taking care of yard work and building upkeep.
Whether you see the perks as actual benefits will depend on your desired lifestyle. So let’s see if your needs and preferences as a homeowner line up with your ideal set-up...
The first thing you need to know is that the same programs offered to single-family homes are available for condominiums. However, mortgages for condo units tend to require a bigger down payment upfront and have higher interest rates due to higher qualification standards on conventional condo loans.
The reason for this is two-fold. First, a condo unit’s value can be impacted by risk factors outside of the borrower’s control. Second, lenders do not wish to finance a condo unit purchase if the condo building as a whole appears to be a risky investment. That’s why lenders will look at more than your financial health and the amount you plan to pay upfront. They will also be evaluating the condo association’s finances.
Lenders will look at everything from the buildings’ structural integrity to the way the HOA has handled its annual budget. This includes the age of the building, the number of units purchased, the number of vacancies, as well as the number of unit owners delinquent on dues, or the number of lawsuits involving the HOA. After all, unpaid fees and mortgage defaults can cause a condo project to lose value.
With this in mind, you may wish to find a lender that has proven experience offering condo loans. You may also desire to seek out newly constructed or renovated condo buildings, as the requirements for these projects are more relaxed.
How you intend to use your condo and the type of condo you wish to purchase will influence the type of financing you will need. Thankfully, there are several options available to suit your needs.
There’s no doubt condos come with distinct advantages over a single-family home. Thankfully, condo loans are available to help people get the funding needed to buy a condo of their own.
While they may have a higher interest rate, they’re still more affordable than your average single-family home. Not to mention, you’ll enjoy more flexible living, as there is less time and money spent on home maintenance projects.