What exactly is a Condo?
Condos are buildings that contain individually owned units. Despite their similarity to apartment buildings, condo units belong to specific owners rather than landlords or property management companies.
Condo owners solely possess a portion of the structure, specifically the interior of their own residence. Meanwhile, a condo or homeowners association (HOA) usually owns and manages external and shared areas of the property
Understanding the Role of a Condo HOA
A condo association or HOA, is essentially a collective of owners who collaborate to establish and enforce building rules and regulations. They assume the financial responsibility for shared expenses.
Maintenance and repairs within their own unit are the responsibility of condo owners. They are also required to pay regular fees to the condo association for the maintenance of shared areas, which fall under the HOA's jurisdiction.
Distinguishing Condo Ownership from Co-Ops
Condos are often mistakenly confused with co-ops, but they are not one and the same. The key difference is that while co-ops can also be found in multi-unit buildings, these structures differ from condos because co-op owners possess an interest or share in the entire building.
In other words, condo owners exclusively own the individual units they reside in, whereas co-op owners do not have this ownership.
Important Considerations Regarding Condo Loans
While condo loans are largely similar to those provided for single-family or multifamily houses, it is not uncommon for them to be more expensive. This is due to the unique intricacies and restrictions associated with shared or jointly owned building spaces, thereby increasing the potential risk for lenders. Furthermore, condominium loan applicants may also face higher costs for other aspects of the home buying process, such as private mortgage insurance, home appraisals, and larger down payments.
Prospective condo owners are strongly advised to seek comprehensive information from homeowner associations and seller's agents before applying for a condo loan. This should include a thorough overview of building regulations, financial information, and pertinent details such as pet policies, annual dues, planned expenses, and any other relevant information.
The Attraction of Condos
- Many first-time homebuyers are attracted to condos because they are typically smaller, more affordable, and require less maintenance compared to single-family residences.
- Generally, condo owners must comply with the HOA's rules, respect their neighbors, and maintain their own individual residences.
- Condo financing works by providing mortgage loans to buyers looking to purchase condos, whether for primary residences, vacation homes, or investment properties.
- The intended use of the condo will affect the required down payment and available financing options. Buying a condo for investment, as a vacation, or as a second home will typically require a higher down payment.
- Condo loans have different rules and qualifications compared to traditional mortgages. Lenders consider various factors when deciding whether to approve your loan, including the age and structural integrity of the property, available amenities, grounds, and current financial situation.
- For instance, a bank evaluating a condo loan may request proof of insurance for the building, HOA meeting notes and budgets, and information about potential special assessments. The bank may also inquire about any pending bills that may be imposed on owners.
- Nevertheless, borrowers can still apply for condo loans through the same programs available for other types of homes. Warrantable condos require more effort as they need to meet specific criteria established by mortgage investors like Freddie Mac and Fannie Mae.