February 22, 2021
What are some of the differences when buying a condo compared to a home?
For the most part, the steps involved in buying a condo are fairly similar to those of purchasing a home. Let’s walk through some of the steps and highlight where things may be different for a condo.
1. Determine what you can afford. Understanding the total cost of homeownership is important whether you’re buying a condo or a home. What is different with a condo is that there may be different ongoing costs to consider and budget for.
Here are a few examples where ongoing costs may differ between a home and a condo purchase:
- Ongoing Home Costs:
- Lawn care and maintenance
- (Homeowners Association (HOA) fees
- Exterior home upkeep and maintenance — gutters, paint, roofing, fencing, and more.
- Internal maintenance and repairs.
- Utilities — garbage, water, electric, and more
- Ongoing Condo Costs:
- HOA fees (can be higher than home HOA costs even within the same neighborhood).
- Internal maintenance and repairs
Because homes and condos in different areas can vary greatly, it’s important that you research your specific condo or neighborhood to understand what you can afford.
With a home purchase, you’ll incur costs for items such as roofing and lawn maintenance — it’s all your responsibility. With a condo, you are likely to pay a higher HOA fee, which may cover such costs as roofing, fencing, lawn maintenance, and more.
In neighborhoods where there is a large community and some mix of condominiums as well as single-family homes, condo HOA fees may be something like $300 per month whereas homeowner HOA fees may only be $80 per month. This is a key point in determining your budget, as you’ll need to calculate the HOA fee into your overall expenses.
2. Determine your housing (condo) needs. This is a matter of personal preference, but here are some considerations you may want to include when thinking about a condo:
- What floor is the condo on? Are there stairs, elevators, or both? Will you have people above you and is it important for you to be on the top floor or the bottom?
- What amenities are available? Is there a pool or a gym?
- Where is the condo located? Is it close to work, shopping, friends, and family?
- Is minimal noise important? As with an apartment, your living area in a condo will likely be much closer to other families than in a detached home.
- Is the condo your primary residence, secondary residence, or investment property?
- Are most of the units occupied full time or are they rented?
- Is there available parking and what kind is it (covered, garage, parking space)?
- Is there adequate storage? Storage can be a challenge with a condo. If your unit has storage, is it large enough, and is it upstairs? If you have bicycles, kayaks, tents, skis, you will want to know if you need to store them or carry them up and down stairs.
- Is the neighborhood safe?
3. Search for and find your condo. Do your research. Start looking at areas you like, understand your needs for schools and locations and start to think about finding a great real estate agent. See more than one condo and understand that some units may have been upgraded by the previous owners whereas some may be out of date and need repairs or upgrades.
4. Make an offer. With a condo, making an offer is very similar to buying a home. You’ll want to understand the comps in the area; what other units have sold for; and what upgrades, floor, and views do to change the values from unit to unit. With this information in hand, you can generally make an informed offer with the assistance of your agent.
5. Get inspections and an appraisal. These are two separate things, but both are important. With an inspection, you’ll hire an inspector to do a deep dive through all areas of the condo. The inspector will check doors, windows, appliances, plumbing, fixtures, and more. Don’t be surprised to get a list of items that are in good working order, a list of items that may be potential problems, and a list of things that need immediate attention. With this list, you can potentially negotiate with the seller to either have items fixed or replaced or even have the price of the unit lowered so that you can manage the repairs necessary.
An appraisal is really for your lender to ensure the value of the property somewhat matches the desired loan amount. As an extreme example, imagine asking for a loan of $1 million on a property that is really only worth about $150,000. An appraiser will examine the area, the home, and recent comps that have sold and determine an approximate value of the home that the lender can use to determine how much loan they are prepared to make for that property. If an appraisal comes in much lower than the agreed-upon price, you may be able to further negotiate the sales price.
6. Get a mortgage on a condo. As mentioned earlier, one question you’ll be asked when looking for a mortgage is whether the property in question — a condo — is for a primary residence, secondary residence, or investment property.
A primary residence is of course a place you will call home and live most or all of the time. If you have only one home, this is your primary residence. If you have a vacation home, this is considered a secondary residence, whether you have one vacation home or many.
An investment property is one where you rent or lease that property to someone else, even if you only rent it out part of the year. Check your area as locations can vary on how they classify primary and secondary residences — mostly for tax purposes.
Your tax base is typically based on your primary residence. However, if your secondary residence is in another state, the government may use the amount of time spent in each home as the determining factor in defining your primary residence, and your taxes may be affected.
If you are obtaining a loan for a secondary residence, you will need to work with your lender to determine if there is a time period you are not allowed to rent based on your mortgage. Secondary residences may also have a slightly higher interest rate than primary residences because there is more risk for the lender. If all were to go financially wrong, the lender will assume there is more risk with the second home. It’s a similar situation with investment properties. Even though you may generate income with an investment property, you will typically find a slightly higher interest rate — even compared with a secondary residence — because there is potentially more risk for the lender.
Buying a condo can be a great investment, whether it’s your primary residence, first home, or even a vacation property somewhere special.
To learn more about PenFed mortgages:
● Call 866-386-7254
● Visit the Mortgage Center