Buying a condominium is often the choice of people who value comfort. Getting that convenience means you may have to deal with additional challenges when it comes to qualifying for a mortgage.
What is a condominium?
Condominiums are individual units within a communal residential complex. They often look like apartments, but instead of renting out, you own your private condo. Common areas throughout the complex such as pools, lounges, tennis and basketball courts are owned jointly by all residents of the complex through a Home Owners Association (HOA).
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Condominiums are often popular in cities with high real estate values. They’re a great option for prospective homebuyers who can’t afford a single-family home and for people looking to downsize later in life. Condominiums also offer amenities that an individual may find difficult to afford, such as swimming pools and regular maintenance.
Understand condo mortgage rates
Condo mortgage rates are typically higher than what the same person would pay if they bought a single-family home with similar terms. Lenders view these mortgages as riskier than traditional single-family home mortgages.
Most conventional mortgages have a higher interest rate than a homebuyer would pay for a single family home because these loans are simply considered riskier loans.
Prospective homebuyers seeking a Federal Housing Administration loan can make a condo down payment for as little as 3.5% and still pay the same rate as a larger down payment. Unlike traditional loans, FHA loans have an upfront mortgage insurance fee of 1.75% of the total loan amount. Some lenders may charge higher mortgage rates for condos, but the increases are usually small.
If you’re thinking about buying a condo, don’t forget to consider the HOA fees associated with the purchase. All condos have HOAs. These associations are responsible for repairs and maintenance of the building’s grounds, grounds, and common areas. HOAs are funded by fees paid by condo owners each month on top of their mortgage.
HOA fees can vary widely and depend on the volume of services rendered. Condo owners will rarely find HOA fees under $100 per month and should expect upwards of $500 per month for high-end properties. You can think of HOA fees as an additional tax for condo living, but they can help you save money in a number of ways. Because the association handles grounds maintenance and exterior repairs, homeowners don’t have to worry about unforeseen expenses like repairing a roof or buying and running a lawnmower. When considering condos, look for low HOA fees. This can be a sign that the complex is not charging enough to properly maintain the area, which will lead to a decline in the value of your condo over time.
Advantages and disadvantages
Condos can tend to appreciate in value more slowly than traditional single-family homes. With lower rates of appreciation, condos can be cheaper than other housing options in the same area. Owning a condo allows you to take advantage of certain homeowner tax deductions.
When looking at complexes, you should make sure the association is on the right track and you understand their expectations. Many complexes have rules like quiet times or no dogs of certain breeds. Others may dictate the length of your grass or how many cars you can have in your driveway. Condos all enforce different policies and rules, so it’s up to you to do your research and make the best choice for your living situation.
Researching the pros and cons of buying a condo will give you more confidence in your decision. Talk to a mortgage broker to find the best deal for your situation. Talk to homeowners associations and residents about the property. It is best to find out about any problems before you buy and move in. You want to make sure you’re buying the best property possible. Condominiums are no better or worse than other types of housing, but you need to make sure that that particular property is right for you.
Author: Deb Klein is Branch Manager at Reliability in Lending- PRMI Chandler and has been helping people to realize their dream of owning their own home since 2004. It specializes in the purchase and refinancing of first and second homes (holiday or investment homes). Deb and her team have the expertise to streamline the loan process for fast and efficient settlement. She has been recognized as a Five Star Mortgage Professional by Phoenix Magazine for the past two years.