You’ve heard the word “condo” or “condominium” before – but what is a condo, exactly? How is a condo different from an apartment? And, what’s the difference between a condo and a townhouse?
There are often some misconceptions about what constitutes this type of housing unit. With so many different (but similar) types of homes, it’s worth understanding what exactly constitutes a condo, and whether or not it might be the right type of home for you.
We’ll cover the definition, how buying a condo works, the pros and cons of condos, the different types of condos and the types of condo loans available to you. We’ll also go over condo fees, which can be all-too-easily overlooked during the homebuying process if you’re only focused on purchase price and closing costs.
What is a Condominium?
A condominium, or condo for short, is similar to an apartment in an apartment building because it’s a unit within a larger structure. But unlike renters who live in apartment complexes, condo dwellers own their units instead of renting them.
How Do Condos Work?
Condo residents typically share certain common areas and amenities with their neighbors. Those who live in condos are not responsible for maintaining these shared areas and amenities all on their own. Common areas might include:
- Parking lot
- Recreational areas
- Fitness facilities
- Utility lines
Condo owners usually pay a homeowners association (HOA) fee or dues to help maintain these common areas. The HOA board – made up of elected condo owners – is typically responsible for hiring professionals to maintain these common areas. In addition to covering maintenance of things like parking lot resurfacing or a walking trail, the fees also go toward some utilities such as water, sewer and garbage disposal.
The Pros and Cons of Condos
- Added amenities: Whether you’re looking for fitness and spa facilities, rooftop pool and recreation areas or kid-friendly living, condo amenities can be a huge draw for many.
- Less maintenance: When you own a condo, you don’t have to take care of mowing the lawn, shoveling snow or cleaning gutters, among others; your HOA fees will include these types of maintenance costs.
- Affordability: Condos typically cost less than single-family homes because they’re much smaller in square footage. Additionally, maintenance usually costs less because you’re not having to pay to maintain things like the exterior of the condo, for example.
- Urban location: Condos are often found in urban areas, which can be a major upside for those who prefer living in an urban city setting as opposed to suburban or rural locales.
- Ownership and equity: For those who have limited resources, prefer certain amenities or simply don’t want the responsibilities of maintaining a single-family home, purchasing a condo can be a more accessible path to homeownership. Condos also rise in value over time, allowing you to build and increase your equity as you make mortgage payments and pay down your principal.
- More regulations: When you buy a condo, you often have to comply with HOA rules and standards for the property. And those monthly HOA fees you pay on top of your mortgage payment? They’re required, whether or not you use all of the amenities those maintenance fees cover.
- Less square footage: While the price tag for a condo can be smaller than a single-family home, the space you get often is, too. You’ll likely be losing some square footage in the tradeoff, as condos often offer a smaller space compared to other types of homes.
- Less privacy: With shared walls and other common spaces, a condo almost guarantees closer quarters with your neighbors and less privacy than you would enjoy with a detached home.
- Harder to sell: It may be harder to sell a condo, especially in a tough housing market. Detached houses on privately owned lots, on the other hand, tend to sell better regardless of current market conditions.
Types of Condos
Did you know that there are lots of different types of condos? Each type of condo can cater to a different lifestyle: a condo home, share, detached condo, private condo, condo building or condo developments.
- Condo home: A standard condo home refers to a residential property in which you own only the part of the building that houses the interior of your home. It’s unlike a single-family home, where you own the property and the dwelling itself.
- Condo share: You can think of a condo share as a timeshare condo used as a second home or vacation home during specified times. You’ll have to pay maintenance fees and property taxes, but it may still cost less than staying at a pricey hotel during peak vacation times.
- Detached condo: Detached condos are just as the name implies — individual units that do not share walls and are not connected. Like all other condos, they have minimal upkeep, amenities and planned community options, though units are still grouped together.
- Private condo or private-owned apartment: Private condos, also called private-owned apartments, are rented out by a landlord to tenants. They differ from standard apartments in their application, criteria and deposit processes.
- Condo building: A condo building refers to a complex made up of individually owned units. An HOA or community property manager typically maintains property upkeep and maintenance.
- Condominium developments: In this case, a developer owns the land the condos are built upon before ownership is transferred to the condo buyer. The main difference here is that the tenant becomes responsible for maintenance and upkeep of the unit (though common areas are typically still maintained by the an HOA).
How Much Are Condo Fees and What Do They Cover?
Let’s walk through the different types of condo fees and what they cover.
- Interior maintenance: You are responsible for the maintenance inside your condo.
- Exterior maintenance: Unlike interior maintenance, you don’t have to maintain the exterior of your condo building. However, that’s why you pay condo association fees, which typically cover landscaping, exterior paint, lawn care and snow removal, among others. A portion of your fees will also go toward major projects like roof replacement.
- Security: Security services are also often managed and maintained by a condo HOA. Knowing your building is protected by security can offer major peace of mind.
- Utilities: Condo owners pay a fee to cover some maintenance and other common utilities costs such as heat, water, sewer and garbage collection fees.
- Insurance: HOA fees alone don’t necessarily cover insurance for the interior of your condo. Any separate insurance fees would provide protection for your personal property or liability protection for accidents that happen inside your condo.
- Reserve fund: You’ll have to kick in money toward HOA reserve funds in many cases. These are liquid funds used to meet unexpected expenses such as roof damage to the condo after a storm.
What Types of Condo Loans Are Available?
You may want to look into the following loan types available if you want to buy a condo:
- Conventional loan: Conventional loans are loans not backed by the federal government, and one of the most popular types of mortgages. Conventional loans are broken up into two loan categories: conforming and non-conforming:
- Conforming means that they can be sold to Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that buy loans from lenders.
- Non-conforming loans do not meet Fannie Mae and Freddie Mac guidelines and requirements.
- FHA loan: The Federal Housing Administration (FHA) backs FHA loans. First-time borrowers who don’t have much money saved for a down payment and who have credit challenges may want to consider getting an FHA loan – borrowers can put down a down payment as low as 3.5%.
- VA loan: Qualified individuals who are veterans, active service members or military spouses can get VA loans. These loans are backed by the Department of Veterans Affairs (VA). VA loans do not require a down payment and allow for lower credit scores.
- USDA loan: USDA loans are also government loans that are backed by the U.S. Department of Agriculture. USDA loans require borrowers to live in a qualifying rural or suburban area and meet specific income requirements.
As with any housing situation, condo living has its own benefits and drawbacks – but it’s all dependent upon your situation and point of view. While condo living may offer less square footage and privacy, it can often be a more affordable option that’s less daunting for those looking to make the jump from renting to buying.
No matter where you are in your journey to homeownership, Morty can help with resources on dozens of mortgage and homebuying topics. Check out “What is a PUD?“, learn how to find the perfect real estate agent and more.