I’m off price single family homes. Should I buy a condo instead?
Do you feel like you are overpriced in the housing market? You are in good company.
Rising mortgage rates mean millions of homebuyers have been squeezed out of the market. That, combined with home prices that are currently up 17% from last year, means that many buyers are simply giving up on their dream of owning a home right now. But what if you don’t want to?
Many buyers are now considering another option to become a homeowner: condominiums.
These private units within a larger complex were actually more affordable than single-family homes in 72.5% of U.S. counties in 2021, according to Realtor.com®.
So if the idea of owning a condo has piqued your interest, read on for an overview of the realities of buying and living in this type of home.
Buying a condo vs a single-family home
The process of buying a condo differs from that of a single-family home in several respects.
A significant difference is that many condominium homes cannot be purchased using government-backed loans, such as Federal Housing Administration loans or veterans loans. For a condo to be purchased with an FHA loan, it must be on the FHA’s list of approved condominium projects. And the same goes for condos purchased with VA loans; the condo must be approved by the VA in order for the borrower to purchase the unit.
Buying a condo also usually involves getting a higher mortgage rate than buying a single-family home. Why? Mortgage lenders view condo purchases as riskier than single-family home purchases. On average, expect to pay 0.75% more on a condo loan.
Mortgages for condos “can be more complicated due to the nature of the shared building,” says Lauren McKinney, realtor at Beverly-Hanks & Associates in Asheville, North Carolina. “There are implications for lenders, so not all condos will qualify for loans. Additionally, there will be a homeowners association and monthly HOA fees to accommodate your budget.
The biggest difference between a condo and a detached single family home is the inherent group setting. There are implications for everything from your lifestyle to your annual home maintenance chores.
“The benefits of buying a condo instead of a single-family home include lower maintenance costs, since the condo association is responsible for things like landscaping and snow removal,” says Tom Kellychief technology officer for retirement planning website LifePart2.
“You also won’t have to worry about things like painting the exterior or fixing the roof,” Kelly adds. “Plus, condos often come with more amenities than single-family homes, like pools, fitness centers, and clubs.”
To find out if you will be connecting with other community members, Deb Tomaroowner broker Deb Tomaro Real Estate in Bloomington, IN suggests jumping online.
“Check if the association has social media pages,” says Tomaro. “Often you’ll find community discussions or board meeting minutes that will give you a real sense of what’s going on.”
Buy a condo if you are young or retired
Condos are particularly appealing to people at certain stages of their lives. If you’re young or retired, you may not like the idea of having to deal with your yard maintenance or outdoor upkeep.
“Single-family homes require more maintenance,” says Shaun Martin, real estate and land developer at Denver-based We Buy Houses. He says condo owners can enjoy the convenience of having their own home, without the hassle that comes with a single-family home.
A condo is also a great option for young people or retirees who live alone.
“In addition to feeling safer, living in a condo also reduces the feeling of being so alone in a huge space,” says Martin.
Don’t buy a condo if you haven’t fully checked the HOA
When you invest in a condo, you are also investing in the homeowners association responsible for it.
“You really need to do your due diligence on the HOA and the financial well-being of the neighborhood you’re buying from,” says Bill Gasset, founder of Maximum Real Estate Exposure and realtor at Re/Max in Hopkinton, MA. “You have to understand the rules and regulations. Are there any pet or garden deal breakers? The financial strength of the community should also be a key consideration.
Contact the community’s property management company and ask to see financial statements like the balance sheet, income and expense statement, and cash flow statement. Make sure there is enough money in the reserve fund to support capital improvements.
Also, learn about potential projects the HOA has underway and think about how they might affect your life. The Board of Directors may ask all members of the HOA for a financial contribution to the project.
Do not buy a condo if you want to make your investment profitable
Historically, single-family homes appreciate faster than condos.
“A single-family home will always be worth more because you own the land,” says Zev Fridus, a realtor with ZFC Real Estate in Boca Raton, FL. “You should consider the ratio between the cost of the land and the cost of the structure. The structure depreciates, while the land appreciates. Real estate is considered a safe and good investment, but the more your purchase price is attributed to the value of the land, the better. »