When it comes to taking out home loans, there is no shortage of options on what types of properties to purchase. Some buyers may be hoping for a detached house with a yard, while others might prefer the simplicity and convenience of a condominium. If you find yourself in the latter camp, it's important to understand the ins and outs associated with purchasing a condo.
What is a condo?
A condo acts like a combination of a private home and an apartment complex. An owner's residence is owned privately, but common areas are owned collectively by all of a complex's residents.
Condos also feature associations that manage common areas and certain aspects of all properties.
Benefits of a condo
In areas with high property values, a condo can offer the comforts of home ownership at a more affordable price. Additionally, for buyers who may not need an excessive amount of space, condos offer tax incentives available to homeowners without worrying about constant upkeep and maintenance of a large property.
Condos are also often located in convenient, central areas that are close to offices, shopping centers, restaurants and entertainment venues.
Condos may offer amenities that homeowners would have to pay much more for, such as enhanced security features, swimming pool, tennis courts, fitness facilities and the like.
Along with the easier upkeep a smaller property offers, exterior maintenance to a condo is handled by the condo association, alleviating the stress and cost that can come with conventional home ownership.
Home buyers should also keep in mind that along with receiving tax breaks for owning a condo, they will also have to pay property taxes. Also, part of the reason that condos are generally more affordable than conventional homes is because they appreciate at a lower rate.
Since a condo is part of a collective whole, the contract involved deserves special care and attention. In addition to the sales contract, buying a condo means signing an agreement that concerns the specifics of how the condo community operates. This agreement can affect everything from how management deals with owner complaints to rules and guidelines that can affect changes an owner can make to their property. It's important for buyers to make sure a condo complex fits their lifestyle.
One of the drawbacks of owning a condo is the monthly fees that it requires. Condo fees can vary from complex to complex, but they are typically based on the size of the unit a buyer owns, as well as other characteristics, such as location and amenities.
Condo fees are used to pay for maintenance and repair to common areas and properties, as well as liability insurance and certain utilities for the complex.
Financing a condo
While obtaining a mortgage for a condo is similar to the process for a conventional home, there are specific challenges involved.
As with any home loan, a borrower looking to purchase a condo must qualify for a mortgage. This means showing that they can afford such a financial obligation through a steady source of income and adequate credit.
In addition, the condo association a borrower is hoping to become a part of may also have to meet certain requirements in order for a mortgage to be approved. These may include stipulations regarding insurance, budget reserves, pending litigation and anticipated special assessments.