It’s easy to think buying a condo is just like buying a house. After all, they’re both private residences. And while there are plenty of similarities in the process of purchasing either one, there are also some very important differences to consider.
Some of these differences are beneficial to potential buyers while others may be significant hurdles to get over. If you’re in the market for a condo, make sure to consider these factors before signing on the dotted line.
What is a Condo?
Are condos more like apartments or houses? The answer is they are a little bit of both. It’s common for condominiums to be seen as synonymous with apartments since they are both private residences within larger buildings or complexes. The main difference between the two is ownership. While a single individual or company owns the entire apartment building or complex, condos are owned by the resident living in the home, just like a traditional single-family house.
The transaction of buying a condo is very similar to buying a single-family home, meaning you’ll likely need to take out a mortgage. Condo mortgages are usually more expensive than they would be for a typical single-family house, because these units are seen as riskier investments. If the condo association as a whole is struggling financially, each individual unit could potentially lose property value.
Just like purchasing a house, buying a condo also requires a down payment. This means you’ll have to pay a sum of money upfront. In fact, condominiums usually require a larger down payment than a house, by percentage. You may need to pay up to 20% of the purchase price to secure the best condo mortgage rate. A down payment less than that could require you to take out mortgage insurance, which will add to your monthly payment.
The good news is that condos are generally less expensive than single-family houses in the same area. So, while both the percentage of your down payment and your mortgage rate may be higher, the total dollars and cents of purchasing a condo will likely be less than buying a traditional house. For this reason, they can be greater starter homes for young or first-time buyers.
Learn more about how AAA can help you with your mortgage.
Homeowners Association Fees
One of the great (and convenient) aspects of living in a condo is access to amenities. Many buildings or complexes come with shared facilities such as fitness centers and parking lots. Even better is that the upkeep of any exterior or shared facility in the complex is taken care of by the condo board. They are responsible for hiring landscapers and pool cleaners, for example.
However, condo owners are required to pay fees to help cover these costs. These fees, known as homeowners association fees, can range from a couple hundred dollars each month to a several thousand. If you live in a high-end complex with amenities such as a spa and gym, you might need to budget for higher monthly dues.
This added cost should be factored in when deciding if buying a condo is within your financial means.
In most cases, condo owners are required to obtain homeowner’s insurance for their individual residence, much like a house owner would do. However, condo complexes typically have a shared master insurance policy that covers parts of the building or complex itself.
Because of this, you may only need a policy that covers the interior of your home. If so, you should be able to secure a less expensive policy than you would if you owned a single-family house. Make sure to check what is covered in the building’s master policy and what is not.
Schedule an appointment with a AAA insurance agent to learn about your coverage options.
When it comes to the freedom to alter your home – and live how you like – condo living falls right in between apartment renting and owning a single-family house. Because you own your home and are not renting, you’ll have more flexibility to make alterations to your condo. However, condo boards typically have some restrictions, such as the color of paint you can use on your home.
These boards also have a host of other rules residents must abide by, regarding everything from pets and quiet hours to the ages of residents and number of guests allowed. Make sure you’re okay with the board’s rules before buying.
Should you buy a condo?
Buying a condo can be a great option for many people, as long as you remember to factor in any additional costs and lifestyle restrictions. Condominiums provide many of the benefits of traditional home ownership at a lower price point and with less of the upkeep.
But most importantly, condo ownership allows you to build equity in your home just as you would with a house. When renting an apartment, much like when leasing a car, you’re paying to borrow, not to own. At the end of your lease, you’re left with no tangible asset. Once you pay off your mortgage, however, the condo is all yours.
Have you ever purchased a condo? How did the experience go for you? Let us know in the comments below.
Learn more about AAA mortgage loans and other home loan services.