What You Need to Know Before You Buy

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Condo vs. townhouse by definition

Let’s start with an understanding of what exactly is a condo and what is a townhouse.

Condo defined

A condo (condominium) is a dwelling located on a shared piece of land. Other dwellings on the property are owned by other people, and the street entrance may be shared. Condo buildings sometimes look like apartment buildings. The difference is that apartments are rented and condos are bought and sold as individual units.

A condo owner doesn’t own the land the condo unit sits on. You own the space inside your unit, and you share ownership of and financial responsibility for portions of the property that are shared. For example, any common area like a lobby, the roof, elevator, parking lot, pool, fitness center, or clubhouse. A homeowners association (HOA) is responsible for maintaining those shared assets. Each condo owner shares the cost of that maintenance in the form of monthly HOA fees.

A condo might have a private yard if it’s on the ground floor.

Townhouse defined

A townhouse or townhome is a home that shares at least one wall with another house. In some parts of the country, attached, townhouse-style homes are called row houses. Row houses or townhouses are usually at least two stories tall. The street entrance is private and not shared with other residences.

When you own a townhouse, you own the land it sits on. Even so, as a townhouse owner, you might be subject to HOA fees. (The same is true for a detached house in some communities.) For example, newer townhouses are often built in communities with shared amenities like pools and clubhouses. The cost to maintain those assets is covered by HOA fees that all the owners pay. If the townhouse owners do not share financial responsibility for communal assets, there will be no HOA fees to pay.

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A townhouse offers a little more privacy than a condo. In addition to private entrances, townhouse owners often have their own front and back yards.

What are the differences between owning a condo vs. townhouse?

Here are the main differences between the two types of dwellings.

Architecture

When you think condo vs. townhouse, many people picture an apartment vs. a rowhouse. A condo is often an apartment-style unit in a condo building, but it doesn’t have to be. A townhouse is a multi-level home attached by at least one wall to someone else’s home.

Ownership

The true difference between a condo unit and a townhouse is in the ownership structure, not the architecture. A condo is a residential unit on a multi-unit property with joint ownership of the land and communal area. A townhouse is a single-family home with private ownership of the land. A townhouse-style home could be a condo if it shares ownership of the land and common areas.

HOA fees

You’ll be hard-pressed to find a condo without an HOA (sometimes called a condo association). But HOAs are only a maybe for a townhouse, especially older townhouses.

HOA rules are usually stricter for condos. For example, you might have to get all home improvements pre-approved. In a townhouse community, the rules might end at your front door.

Plus, townhouse HOA fees are almost always lower because most townhouses don’t offer as many different kinds of amenities as their condo counterparts.

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Mortgage lenders factor HOA fees into your mortgage application. Before looking for a loan, consider using a mortgage calculator to figure out how much of an HOA fee you can afford along with your mortgage payment.

Property taxes

If you’re comparing condo vs. townhouse and the two homes are more or less equivalent (same square footage, same number of bedrooms and bathrooms, same year of construction), the property taxes on the condo will probably be lower.

There is no difference in how property taxes are calculated for a condo and a townhouse. You will pay taxes based on your local government’s property tax rate and your home’s assessed value. The difference is that in a condo, part of the value belongs to the HOA, not to you. You’ll pay additional property taxes in a roundabout way, though, because the HOA pays property taxes and all the owners support the HOA through monthly fees.

Homeowners insurance

Homeowners insurance for a condo costs less than a policy for a comparable single-family home. That’s because your condo insurance policy covers less — typically only the interior of your unit. You might not have to pay to insure any outside features of the property. Again, you’ll pay for the coverage through your HOA.

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Townhouse insurance is very much like insurance for a detached home.

If you have a mortgage, you can opt to have the mortgage servicer pay your property taxes and homeowners insurance. The annual total for the two expenses is divided by 12 and added to your monthly mortgage payment in equal installments. The HOA monthly fee is usually paid directly to the HOA by the owner.

Mortgage interest rates

The mortgage rates for condos tend to be a little higher than they are for comparable single-family homes. Also, each government agency has its own set of criteria for qualifying a condo for a government-backed loan. They’ll need the answers to more than a few questions that don’t apply to a townhouse or a detached home.

Condo vs. townhouse: Which is right for me?

The choice between condo or townhouse is driven by so many factors, many of which are personal.

Reasons to buy a condo:

  • Condos tend to cost less than townhouses of comparable square footage
  • You may find an active social scene in a condo community, especially for adults
  • Condos are often located in downtown neighborhoods
  • Many condos come with luxury amenities
  • An HOA relieves you of responsibility for exterior maintenance

Reasons to buy a townhouse:

  • Townhouses can offer more privacy in general
  • A townhouse might offer private outdoor space
  • Townhouses are typically located in more suburban areas
  • Families might find more outdoor play opportunities for kids in a townhouse
  • Many townhouses have no homeowners association fee

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View more information: https://www.fool.com/the-ascent/mortgages/condo-vs-townhouse/

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