Have you considered purchasing a condo (condominium)? There are many reasons to be attracted to condo living.
Condo owners are typically attracted to reduced maintenance costs, community living, or a desire to live in a walkable area.
Whatever your reason for looking at condominiums for your next dream home, there might be more to this type of property than you realize. We answer the question, “what is a condo?”
If you are thinking about buying a condominium, we’ll help you decide if this is the right type of home for you. There are differences between condos and other types of properties that you might not have known.
Unlike from apartments, condos are owned by individuals. If you own a home like this, you will have to pay monthly fees to the condo association.
A condominium association is a type of HOA that will deal with the communal areas and the exterior of the building, leaving less for you to worry about.
While this might sound great, there are some negatives to consider as well.
But first, let’s dig deeper into what condos are (or aren’t).
What is a Condo?
So what is the definition of a condo? A Condo is short for “condominium.” According to Wikipedia, the words originated in Latin and have been traced by scholars to a document from 1st century Babylon.
Condos are homes in a housing development where different people own each individual unit.
A condominium project typically consists of many individual unit owners who share in community property.
General common elements include landscaping, tennis courts, swimming pools, and fitness centers.
These amenities are almost always found in warmer weather climates or retirement communities. A condominium development in a cold-weather environment will likely have snow removal included with the monthly condo fees.
The condominium units in a condo complex are typically run by a governing body of board of directors made up of unit owners who oversee day-to-day operations.
If you rent a condo, you’ll be dealing directly with the owner of the home instead of a management company.
When you own a condo, you will have to pay HOA dues to an association. It is highly unlikely you find a condominium without an HOA.
These fees go towards maintaining common areas of the complex and any additional perks like those mentioned. The owner of the condo is responsible for maintenance and repairs inside their individual unit.
You take personal responsibility for everything inside the interior walls or “studs in, “as many real estate agents and others refer to it within the industry. These are all the things that make a condo a condo.
[Learn more REAL ESTATE TERMS here.]What are the different types of condos?
Condos come in different shapes and sizes, with the two primary categories being freehold and leasehold. A freehold condo is owned outright, whereas a leasehold means the tenant has a contract with their landlord for the home.
It is common to see condo units that are part of a single building or a complex of buildings. But condos can also look more like single-family homes, with the difference not obvious on the outside.
These condos can be detached, but the owners can still pay condo association dues to maintain the buildings and communal areas.
Let’s look at the different kinds of condos you could encounter.
This is simply a building made up of units owned by individuals. There will normally be an HOA or property management company involved in maintaining the complex. There are a couple of types of buildings.
You may find high-rise buildings or something on a smaller scale.
With a high-rise building, they are most often found in an urban area or within a city.
It is not uncommon to see parking garages within the building itself. With a larger building, you’ll find additional parking spaces within a parking lot.
Sometimes there are common spaces assigned. In some instances, you can also purchase your own parking spot.
Often getting your own deeded parking space can be an important factor for those living in the city.
Condo developments are constructed on land that the developer still owns. These homes will be freehold properties, with the owner responsible for maintenance both inside and out.
Typically, a management company will deal with the maintenance of communal areas on the development.
This is a situation where the owner just owns the interior of their property. This is different from traditional houses, where the owner is responsible for the entire property and the land where it is situated.
A key difference between condo living and single-family homeownership is having common property.
If you like the idea of living in a single-family home without some of the downsides of living very close to your neighbors, detached condos might be right for you.
As the name suggests, detached condominiums don’t share walls with their neighbors. They still benefit from low maintenance with the HOA taking care of upkeep.
A detached condo is the best of both worlds for those looking for less maintenance but wants some additional privacy. The main difference will be less noise and possibly more land surrounding the home.
Sometimes known as private apartments, these condos are rented out to tenants, similar to apartments with a few differences. These differences can include different application requirements and landlord rules than are typical with apartments.
These are generally vacation homes where the tenants allocate days to spend in the home each year. You essentially own shares of interest over a specified time frame. Timeshare or condo shares are homes where tenants only have limited access.
While property taxes and maintenance can be spread between the tenants, timeshares don’t make for a good investment. They are often difficult to sell but provide a vacation property that can be a considerable saving on similarly located resorts.
It is essential not to commit to a time-share condo without reading all the fine print in detail. It would be a good idea to have a real estate attorney look over any documentation too.
There are often important details in these documents that could have significant financial impacts, including your desire to get out of them.
The Pros and Cons of Condos
As with any type of housing, there are advantages and disadvantages. Let’s look at the pros first. It would be highly advisable to read about the questions you should ask before buying a condo. For example, always ask if any special assessments are coming up.
Without finding out, you could be hit with a significant expense beyond the purchase price you weren’t planning for.
You’ll also want to key in on the reserve fund to ensure ample funding is available for projects down the road.
If the cash reserves are low, you could be on the hook again for an unplanned expense.
These are just a few of the many things to do as part of your condo purchase due diligence.
Condos: The Pros
Affordability is More Common
Generally, condos offer more to homeowners with lower budgets. Though you still have to remember the extra fees, you’ll pay for maintenance in the complex. Condos are normally cheaper than a single-family home overall.
If the cost of buying a home is something that has put you off from starting the process, you might find that a condo is more in line with your budget.
The mortgage lenders you’re working with can help with any potential lending guidelines for purchasing a condominium.
If you plan on getting an FHA loan, make sure the Federal Housing Administration has approved the condo community for financing.
Although being FHA-approved is a popular option, it does cost money, and some condo board members can be shortsighted about getting approval. Many potential buyers use FHA financing, so having it approved will be worth it.
See why FHA condo approval is vital as both a buyer and seller.
Maintenance is Covered
If you are looking for a home with fewer things to worry about, condominiums could make a great choice. With this type of home, you won’t have to worry about as many maintenance issues that would be present with most other types of property.
The condo association will take care of the lawns, pest control, and deal with leaks in the roof, for example. This leaves you with less to worry about to make sure the home is properly maintained.
Residential units with limited common elements will also put less strain on your finances through lower condo fees.
You Might Get Additional Amenities
If you like the idea of having access to additional amenities, condominium living might offer it. Amenities offered will vary between condominium complexes but could include a pool, gym, or dog park.
You can benefit from these facilities without having to be responsible for their maintenance. A homeowners association could be responsible for this instead.
These advantages make buying a condominium ideal for quite a few different types of people. If you are looking to downsize from a larger home or are looking for a home with fewer things to worry about, condos make a great choice.
Condos: The Cons
Privacy Can Be an Issue
Condo living typically means you are going to be sharing a smaller space with more people. While this can provide a better sense of community, it does also mean that you’ll have less privacy.
If you are sharing a wall with your neighbor, there is a chance that you could have some problems with noise.
In these types of developments, there can sometimes be restrictions on guests, and you might need to check with the HOA. This is something that wouldn’t be a concern in a single-family home.
Space Can Be Limited
Condominiums often lack outside space, and though there may be access to a park or playground, this isn’t guaranteed.
It’s possible you might need to travel some distance whenever you want to enjoy the outside. This won’t be a problem for many but could be a concern for larger families.
Homeowners Associations Can Have Overbearing Rules
Living in a condo development means following the rules set out by the HOA. These rules can even include restrictions on your choice of pet, parking requirements, and limits on what you can do with the property, like renting it out.
Strict rules can often be a damper for those looking into a condo purchase.
You will also be required to pay a monthly fee to the HOA. These fees can help cover the cost of maintenance to facilities and future upgrades.
The expenditures could be a high extra cost to add to your monthly mortgage payment.
If you are someone who doesn’t like the sound of additional rules restricting what you do with your home, condos might not be for you. Here are some common condo rules worth reviewing.
Comparing Condominium Living to Other Types of Homes
As hopefully, we’ve shown, living in a condo has its advantages and disadvantages. But to help you work out if a condo is right for you, we’ll compare them to other types of property.
How Do Condos Compare to Apartments?
It can be easy to confuse apartments with condos, and many people think the terms are interchangeable. However, there are differences and some which are quite important. The big difference lies in the fact that you can only rent an apartment, while you can either rent or buy a condo.
So, ownership is the most significant difference between a condo and an apartment.
Have a look at the comparison of renting a condo vs. an apartment.
Ownership is Not The Same
Property management companies normally own apartment buildings, but this isn’t the case with condos. Different people normally own condo units.
There will generally be a condo association instead of a property management company to deal with the maintenance of the building. So instead of paying rent to the management company and leaving the maintenance to them, you have to deal with the owner if you are renting a condo.
Amenities Can Vary
Both apartments and condo complexes may offer extra community amenities. What is available can vary a lot, with some complexes offering pools and gyms.
If there are better amenities offered in the building, you can expect to pay more rent.
Amenities offered within apartments are frequently the same for all units. In condos, they can be quite different between units. That’s because an owner of a condo can do what they like inside the home as long as they don’t disturb their neighbors. This can mean kitchens get renovated and appliances upgraded to improve the condo.
Expenses Are Usually Comparable
The cost difference between renting a condominium and an apartment might not seem too far apart. The fees you will pay will be slightly different, but the overall costs will be fairly comparable.
There are association fees to pay with condos, and your landlord may give you the responsibility to pay it. The other option is to add it to the monthly rent. Responsibility for dues collection will be a vital consideration.
The same can happen with utilities, but you should make sure you check the lease, so you know where you stand before signing. Different owners don’t always do things the same way.
Owners of condos have to pay association fees, HOA fees, as well as property taxes. They could also have mortgage payments to cover each month, and all of these costs need to factor in the decision to buy this type of home.
Maintenance is Covered With Both
The management company will handle maintenance in apartments. They might even have staff on-site for larger buildings that can deal with any issues quickly.
If you are renting a condo, you will have to contact the owner to deal with issues within the home. This can mean things take longer to get fixed while you contact your landlord, and then they wait for someone to come to repair the problem.
Rules Apply to Both
There will be rules when living in a condo or an apartment. Apartment rules will be set by the property manager or company responsible for the building. These rules should be the same for everyone in the complex.
In a condo rental, you will have to follow the rules laid out by the association responsible for the building. The condo association board will be operated by people who own units in the building, so they should be reasonable as members of the board have to follow them. But as a tenant, you will have to follow any additional rules that your landlord has as well.
Comparing Condominiums With Houses
Often, single-family houses are more expensive than condos and are less likely to be located near the center of cities. The choice between these types of homes likely comes down to whether you want more space or you want to live nearer the city.
Here is a detailed comparison of buying a condo vs. buying a home.
Ownership of Property is Not The Same
Buying a house will be different from a condo purchase. A single-family house isn’t normally going to share walls with neighboring homes like condos often do. These properties will probably include the land that the home is built on and generally have more outside space than condominiums.
You can expect to have far more privacy, especially when you own an acre of land or more.
Amenities Are Different
Houses don’t usually offer extra amenities outside of the home. Condos are more likely to offer owners community amenities, though there will be association fees to pay for this. These extra fees will go towards maintenance as well and can include utilities.
Expenses Are Usually Less
You can expect a house to cost more than a condo in general. When you purchase this type of home, you are paying for the land, and the home will probably be larger. Though you won’t have condo association fees to pay with a house, you will have more maintenance costs and taxes to consider.
A single-family home is usually a better option for larger families.
Maintenance is Reduced
Houses require more maintenance than condos. The owner is responsible for the exterior of the home along with the inside. This will include the front and back yard, so if you don’t like having to deal with mowing the lawn, perhaps a condo is better.
Maintenance is a big expense that is reduced with condo living. Major repairs are more likely to happen with owning a house.
With a house, there is more opportunity for renovations and upgrades to increase the value. It will cost you more initially, and you will need the time and money to invest in improvements.
Rules Might Bother You
With a single-family home, there is less chance of rules to restrict how you use your home. Strict HOA rules are less likely with houses, which could prevent you from making changes to your home. With a home, you make your own rules and don’t have to live by someone else’s you might disagree with.
Condominium owners can end up being very disappointed when they don’t read through the rules carefully. Having restrictions will be the biggest difference from owning a home.
Comparing Townhouses and Condos
Townhouses are where condos and single-family homes meet. While townhouses share things with condominiums, there are some differences too.
Townhouses have shared walls and multiple stories but don’t have neighbors above or below.
Learn more by reading what is a townhouse.
Townhouses can be either a condo or own as you would a traditional single-family home. If the townhouse is following the condominium model, you will only own and be responsible for the home’s interior.
An HOA will take care of the exterior and communal areas.
Alternatively, the townhouse will be fully owned, including the land it sits on. This can avoid HOA fees and restrictions but does mean there is more to take care of. Quite often, there can be fewer amenities with townhouses.
Amenities Can Be Different
Often townhouses won’t benefit from the same amenities enjoyed in condominium developments.
Newer townhouses are more likely to have access to similar amenities, however, with resort-style community developments.
Expenses Are Usually Less With Townhouses
Typically, you can expect townhouses to be less costly overall. While you could still find that you have to pay HOA fees with a townhouse, the costs are likely to be less than a similar condo.
If there isn’t an HOA involved, there will be maintenance costs to consider though they will likely be less than a normal single-family home.
Maintenance Usually Differs
Where you save on HOA fees, you’ll have to pay for repairs and the upkeep of the townhouse. As well as the interior, you need to take care of the yard and maintain the roof and walls. You’ll need to budget for sufficient funds to cover these expenses as they come up.
Rules Are Typically Similar
If your townhouse is part of an HOA, there will be rules to follow. These might not be as strict as the rules implemented by condo associations, typically, but associations vary. You need to be sure you fully understand the rules before deciding the property is right for you, whether it is a townhouse or a condo.
How to Find a Condo to Buy or Rent?
The best way, of course, to find a condo to buy or rent is to seek out a professional local real estate agent. They will show you the local condo projects in the area you would like to live. If you’re just getting started with your search, you can also do some research on your own.
You might give a condo near me, a condo for sale near me, or a condo for rent near me a shot. You are likely to get a decent amount of search results to look around on your own before hiring a buyer’s agent. If you drive around and find some condo developments you wish to explore a Realtor will be able to help with that.
Keep in mind that condos require far more due diligence, especially on the financial end than homes do. An exceptional agent should be able to do the necessary research for you, including collecting all of the pertinent condo docs.
The condo docs, including the declaration of covenants and financials, should be looked at carefully. Doing so will allow you to make an informed decision on whether it’s a great place to buy. The best way is to do all your research before signing the legal document to purchase.
Make Sure The Condo is Warrantable
One last very crucial piece of information. When purchasing a condo you’ll want to make sure it is warrantable. Residential buildings that are not warrantable are much more challenging to sell. When a condo project is non-warrantable it means that it does not meet conventional financing guidelines. Fannie Mae and Freddi Mac will not be able to sell the loans.
Under these conditions, a significant amount of buyers would not be able to purchase a non-warrantable condo. The lack of being warrantable will have a negative impact on the appraisal value.
Usually, a condo is considered warrantable under the following conditions:
- No single entity owns more than 2 units if the condominium project is between 5-20 units. With projects with 21 or more units no more than 20 percent ownership.
- If the project is 2-4 units the review could be waived by the lender.
- The subject is a detached condo that does not share walls with another condo.
- At least 50 percent of the units are owner-occupied.
- For owner-occupied agreements, there is no owner-occupancy requirement.
- Less than 15% of the unit owners are behind on their condo dues.
- The condo association is not involved with any lawsuits.
- The building’s square footage has less than 35% commercial space.
Checking if a condo is non-warrantable is advisable so you don’t waste your time trying to buy when you’re not able to get financing.
If you’ve been wondering, “what are condos?” you should now have a better understanding. There may be more types than you thought and more options for your next home.
Despite the advantages of different types of condominiums, the unique characteristics of the condo you are looking at should play a larger role in your decision. One complex might offer better advantages to another, and the location is normally crucial too.
Condos are often ideal places to live for first-time buyers or people looking to downsize from a larger home. They can offer all the amenities you want, without the headaches of having to maintain these yourself.
While there are extra fees to pay above what you would pay in a traditional home, this saves you from dealing with much of the upkeep of your home. Hopefully, you are now armed with all the information you need to make a final decision on whether a condo is a right move.