If you’re looking to become a homeowner, you have options. You could buy a standalone house, or you could see about buying a condo. Here, we’ll walk you through the process of how to buy a condo and review the pros and cons.
What is a condo?
A condominium, or condo for short, is a privately-owned unit within a building of other units. When you buy a condo, you own your unit, but you share joint ownership of your building’s common areas, such as parking garages, playgrounds, and swimming pools, with your fellow condo owners. Condos are managed by a condo board or homeowners association (HOA) that sets rules and charges a monthly fee to oversee and maintain all common areas.
How does buying a condo differ from buying a house?
When you buy a house, you own not only the house but also the land it sits on. You’re also responsible for maintaining that land, which means that when it snows, you have to shovel your walkway, and when your grass grows, you need to trim it.
When you buy a condo, you own the individual condo unit you purchase. The rest of the building, however, falls under the shared ownership of your condo community — the other people who live there and own condos. With a condo, you’re required to maintain your individual unit, but you’ll pay a condo fee that covers common area maintenance. As such, when you own a condo, you won’t be responsible for mowing the grass outside your building or removing snow.
Another key difference is that when you own a house, you get to call the shots. You can knock down walls and rent out your home if you want to boost your income. With a condo, you must stick to the rules set by your condo board or homeowners association. Those could include rules about quiet hours in the building and rules about whether you’re allowed to rent out your condo unit or run a business from it.
Note: There are also important differences between condos vs. townhouses. Before you shop for a condo, make sure you know exactly what you’re interested in.
How to buy a condo
Buying a condo is a bit different than buying a standalone house. Here are the steps involved.
1. Get pre-approved for a mortgage
A condo assocation can reject buyers if they don’t meet certain financial criteria. That’s why it’s important to get pre-approved for a mortgage if you’re buying a condo. Not only will that give you a good idea of how much you can borrow, but it’ll give your condo board a reason to have faith in your ability to pay your mortgage and monthly HOA dues.
2. Find the right building
Not all condos are created equal. So make a list of the amenities that matter most to you and find a condo building that checks as many as possible off your list. Also, do your best to dig up HOA fee information on different condos so you know what your monthly maintenance fee will amount to. You’ll want to make sure that fee, plus your actual mortgage payment, fits in your budget.
To see what your mortgage payment might look like, use this mortgage calculator. And if you’re not sure what interest rate to plug in, you can use today’s mortgage rates to get an idea.
3. Make an offer — and wait for approval from your seller and the condo board
When you buy a house, the offer process is simple. You make an offer on a house, the seller accepts, and you move forward.
But when you’re buying a condo, the condo board must approve you as well. To that end, you may need to provide specific financial documentation. This includes copies of tax returns, pay stubs, and bank statements. These are items you’ll generally need to provide to mortgage lenders, so it’s not an extra chore per se — but it’s something you’ll need to prepare for.
4. Gather documentation on your condo and HOA for your lender
If your offer to buy a condo is accepted by its seller and you’re approved by the condo board, you’ll then need to get an actual mortgage. And to that end, you may have more legwork than you would with a regular house. This is because you’ll generally need to provide information on the condo board or homeowners association itself to your lender. Often, you can’t access that documentation until you’re approved as a buyer. But once that happens, your lender may want to see copies of your condo board’s budget and financials.
5. Get a home inspection
Just as it’s common practice to get a home inspection when you buy a house, so too will you need one when you buy a condo. An inspector will examine your unit as well as the building’s common areas to check for lurking problems. If your condo building’s roof is discovered to be in bad shape, for example, your dues may increase to cover that repair. That’s the sort of thing you’d want to know about before you complete the purchase of your condo.
6. Close on your mortgage once you’ve satisfied your lender’s requirements
As is the case when you buy a house, your lender will do its due diligence to make sure your condo is worth enough to cover your mortgage loan. It will also ensure there are no financial concerns or issues (like outstanding lawsuits) with the homeowners association you’ll be joining. Once your lender is satisfied, you’ll close on your mortgage.
Is buying a condo right for you?
There are several benefits to condo ownership. For one thing, a condo could be less expensive than a standalone house. Furthermore, with a condo, you’ll have less maintenance to do yourself because you’re only responsible for taking care of your individual unit.
On the other hand, with a condo, you get less freedom and more restrictions. There may be certain rules to follow, for example, about selling your condo or turning it into a rental property. You may also be barred from owning a pet, or certain types of pets (some homeowners associations don’t allow certain dog breeds). Also, with a condo, you may get less space than you would with a house, and your monthly dues could get expensive. Plus, they can increase over time.
Ultimately, buying a condo could be a smart choice, but be sure to weigh your options. There are also certain challenges you might face in the course of buying a condo that you won’t face when buying a house. Make sure you know what you’re getting into before you spend time looking for the perfect condo to call your own.
View more information: https://www.fool.com/the-ascent/mortgages/how-buy-condo/