What to Know Before Buying a Condo
Condominiums, aka condos, are attractive investment opportunities for people who want to own property and share community amenities. If you don’t mind close neighbors and want to save money on buying a home, a condo might be the solution to your dreams. Here’s a look at the steps involved with buying a condo, which differs from buying a single-family home.
Evaluate Your Lifestyle
Before deciding on purchasing a condo, you should assess whether or not it’s the right environment for you and your family. The benefits to owning a condo are affordability and fewer maintenance concerns. Condos are ideal for homebuyers on a budget or seeking to downsize. However, one of the main drawbacks is that it’s harder to get a loan for a condo due to policies on owner occupancy and loan-to-value ratios.
Like living in an apartment complex, condo occupants must follow the rules known as covenants, conditions, and restrictions (CC&Rs) set by a homeowners’ association (HOA). Failure to comply with these rules can lead to a fine, lawsuit, and/or getting forced out. As a condo owner, you’ll pay monthly fees for maintenance, repairs, and complex facilities such as pools and fitness rooms.
Ask yourself if you want to take on these responsibilities. By living in a complex with other condo owners, you’ll also need to fit into a certain culture. Condos are typically located in urban downtown areas to accommodate career-driven commuters. They are often designed for convenience, located within walking distance of stores. But condos are not necessarily where to find peace and quietness.
People Attracted to Condos
Condos bring together people who enjoy minimalism, as in low maintenance and fewer storage requirements. It’s ideal for a retired couple who doesn’t want a large home with complex upkeep issues. Also, young people buying their first home who want to live centrally near nightlife might benefit from this environment.
Why Condo Loans Differ from Regular Home Loans
Lenders are usually cautious about giving loans to condo buyers and typically require a certain number of complex units to be owner-occupied. There may also be limits on the number of units an investor can purchase. For instance, lenders may avoid investors who own more than 10 percent of a building and require the complex to have at least 90 percent occupancy.
Another hurdle you may face with a lender is strict loan-to-value (LTV) ratios and restrictions. An LTV ratio reflects the difference between how much of a property is owned and owed. So, if your down payment is 20 percent, your LTV will be 80 percent.
If you seek a condo mortgage loan and think you have been denied based on some form of discrimination, you can file a complaint with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD). You may also want to explore mortgage loans backed by the Federal Housing Administration (FHA). These offerings are categorized as Section 234(c) loans for buildings with four or more units.
The best way to avoid the hassles of purchasing a condo is to work with a real estate agent and loan officer experienced with condos. They can help you become aware of your options. Then you’ll need the right homeowner’s insurance plan to protect your assets.
Condos can be money-saving alternatives to today’s expensive housing market. However, you need to work with seasoned professionals who understand the issues facing homeowners’ associations and homeowners. Our insurers at Jack Stone Insurance Agency will help you through the entire process. Contact us today to get started!
