Written by: JR Obrecht
Getting a mortgage for a condo is not the same as getting one for a single-family home. Here are some key differences to keep in mind when considering your options.
What is a Condominium (Condo) vs. a Single-Family Residence?
A condo is a dwelling that the owner owns but does not include the land it sits on. The land is typically owned by the builder or the Condominium Owner’s Association (COA). On the other hand, a single-family residence is a traditional home where the owner owns both the land and the dwelling upon which it sits.
Condo Associations:
When you buy a condo, you become a member of the COA, which is responsible for maintaining the common areas of the building or complex, such as a clubhouse, pool, or fitness area.
Condo Association Approval:
To determine the marketability and sustainability of the project, a good lender will order a COA questionnaire. The questionnaire provides answers about the number of units owned by one entity, the annual revenue, the annual budget, and how much of the fixed costs are held in cash. These answers will dictate how much to put down or if financing is available.
Down Payment:
While the mortgage rates for a condo are not much different, they become similar with a larger down payment. The reason is that a condo’s value does not appreciate as well as a single-family dwelling’s.
Resale Value:
Condos do not appreciate at the same rate as a single-family residence, which can affect rates as well as resale value.
Fees:
Condos often come with monthly fees to support the COA’s efforts to maintain common areas. It is essential to review the budget. If normal budget revenue isn’t enough to cover, then there is the potential for a “special assessment.” This means you will get billed for the additional costs absorbed by the COA.
To conclude, if you prefer a low-maintenance dwelling option, getting a condo can be a great solution, provided that the condo association is well-managed and you have enough assets to put 20% down or don’t mind a slightly higher interest rate. Remember to take into account the COA questionnaire, down payment, resale value, and fees when deciding between a condo or a single-family residence.