As a potential homebuyer, you may look at a variety of property types before making your final decision. Will a condo work for your lifestyle? Maybe you’re thinking about a single-family home with a big yard for your family. Either way, making the decision between a home or a condominium is much easier when you know the ins and outs of financing each and how they differ from each other.
In fact, purchasing a condo can be quite different than buying a home. Here are a few things you might not know.
Financing a Condo Can Be Harder Than a Home
Condominiums can be more difficult to finance than homes. Much like a home purchase, both the borrower and the property have to meet underwriting guides to qualify for the home loan. However, with a condo, the borrower and the property must both still meet all guidelines, but another layer is added into the mix – the project, which must meet the guidelines of the FHA, Fannie Mae, Freddie Mac, etc. to be considered an acceptable risk.
For example, you can be denied an FHA loan on a condo in some areas if the condo building is made up primarily of rentals rather than primary residences.
If you are planning on updating or renovating the condo, you’ll need approval first. Many condominium communities have strict rules on anything from paint colors and flooring to even hours when you can take out your trash cans. With a condo, you will only own the interior of the condo, not the land surrounding the condo. Your neighbors will be in close proximity and you may face restrictions when work is being done on their condos or the condo community in general. If you are financing a single-family home, you will have full control over construction and updating, but you may face restrictions if you have an HOA.
HOA and Other Fees
When living in a condo, you will likely have to pay HOA fees that take care of landscaping and exterior maintenance, but you won’t have to worry about hiring people to fix things. With a home, you are responsible for all maintenance. Before choosing to finance a condominium, you should be sure to look into exactly how much money you are required to pay for maintenance, HOA fees and others.
Include a contingency review and approve the CC&Rs, the articles of incorporation, the bylaws and the rules and regulations of the condo association when buying a condo. Review the minutes of 6 to 12 months of board meetings to gain a better insight of the current issues with the condo that are being discussed.
Look over financial documents to find out how many of the units are occupied by non-owners, because this may affect your ability to receive a loan for the condo you wish to purchase. You will also want to know if the association is tied up in any litigation. You can get these documents from the seller, agent or escrow company to examine and approve.
These are just a few of the considerations to make when buying or financing a condo. If you are ready to take the next step in financing a home or a condo, let us know and we’ll help you get started.