An In-Depth Condo Buying Guide
One reason why many first-time homebuyers prefer condos over single-family homes is that they are typically more affordable and give them the means to start building equity sooner. In addition to the usually lower cost to purchase, buyers tend to benefit from lower maintenance costs, and you’ll typically find these homes in urban settings that provide easy access to schools, healthcare, mass transportation, and other amenities.
If you’re wondering how to buy a condo for the first time, going through this condo buying guide will equip you with the information you need to make an informed decision.
What Is a Condo?
The Merriam-Webster dictionary defines a condo as “a unit in a multiunit structure or on land owned in common.” In real estate parlance, when you buy a condo, you own the unit you purchase. In addition, all other owners in a condominium collectively own shared spaces, garages, parking lots, recreational amenities, and play areas. In theory, a condo can be a part of any shared structure or land. Some common examples include:
- Townhouses inside gated communities.
- Detached homes in planned communities.
- Midrise and high-rise apartment buildings with common amenities.
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Contact UsCan You Own a Condo Forever?
From the ownership rights perspective, you stand to own your condo forever, provided you have a permanent financial interest in the unit. This is because most condos are freehold and not leasehold. While the structure of a condo building or unit may deteriorate with time, there is no change in your ownership.
If a homeowners’ association (HOA) opts for redevelopment or sale of a condominium, owners typically receive their share based on the proportion of their unit’s square footage. As with other types of homes, it is possible to pass down your condo to your heirs through your will or estate.
The Role of the HOA
Once you buy a condo, you become a member of the condominium owners’ association, more commonly referred to as the homeowners’ association (HOA). It is common for HOAs to have elected members who serve on their boards to maintain community standards, manage finances, and enforce rules. An HOA may choose to hire a professional management company to handle day-to-day operations, as well as maintenance and administrative tasks.
What About HOA Fees?
When you buy a condo, HOA fees are part of the parcel, and you must find out how much you need to pay before making an offer. These fees tend to vary based on where you plan to purchase a home, the size of the community, as well as the amenities on offer. Data collated by RubyHome highlights how the location makes a difference, even when it comes to metros, with the mean monthly HOA fees being less than $100 in Dallas and over $650 in New York City.
HOA fees are also subject to rise, and the state of Florida serves as a prime example. According to a Redfin report, HOA fees in Orlando, Tampa, and Fort Lauderdale increased by over 15% from 2023 to 2024, mainly because of new safety requirements and rising insurance costs.
Condo vs. Apartment
The main difference between a condo and an apartment is that while you get to own a condo, you cannot buy an apartment, and have to rent it instead. Here are other aspects that differentiate the two.
- Maintenance. Condo owners are responsible for the maintenance and upkeep of their units and might share responsibility for maintaining common areas. Property owners, managers, or management companies are responsible for maintaining entire apartment buildings and individual units.
- Customization. As a condo owner, you may renovate and/or customize your unit, as long as you abide by the HOA rules. Since you don’t own an apartment unit, you get little to no freedom on this front.
- Financing. It’s possible to get a mortgage for a condo but not an apartment (since there’s no purchase involved).
- Equity. You keep building equity in a condo as you keep paying off its mortgage, but you don’t get to build any equity by staying on rent in an apartment.
Condo vs. Single-Family Home
When it comes to condos and single-family homes, while you own your home in both scenarios, overall ownership varies slightly. For instance, if you buy a single-family home, you own the home as well as the land it sits on. With a condo, while you own your unit, you also have partial ownership in the common areas. There are other differences, too.
- Maintenance. Single-family home owners are responsible for their homes’ maintenance and repairs, both inside and outside, as well as landscaping. With condos, owners are responsible for the interior of their unit, and HOAs handle the maintenance and upkeep of common areas as well as landscaping.
- Cost. Single-family homes are typically more expensive than condos because of their larger sizes and land ownership.
- Fees. Condo owners have to pay HOA fees. While there is no such requirement with most single-family homes, buying a single family home in an organized community requires that you pay HOA fees.
- Privacy. Given that condos tend to have shared walls and common areas, single-family homes usually offer more privacy.
How to Buy a Condo for the First Time
The answer to “What is the best way to buy a condo?” is that you should follow a systematic approach. After all, there is no dearth of people who make mistakes when buying a condo because they’re in a rush, and you can avoid them by following a few relatively simple steps.
- Apply for pre-approval. It’s best that you start by getting in touch with a mortgage provider and applying for a pre-approval. If approved, you get an indication of how much you can borrow and base your search accordingly.
- Identify suitable communities. Partnering with a real estate agent with local knowledge makes sense because they can show you properties based on your preferences and budget.
- Determine which amenities you want. Carefully think about the amenities you want because there might be no point in paying for something you don’t use. For example, if you’re into fitness, you might benefit by living in a community that has a gym and swimming pool.
- Research desired communities. Once you narrow down on communities you find interesting, learn as much as you can about them. This includes finding out how much you’ll need to pay as HOA fees and reviewing all rules/regulations.
- Inquire about special assessments. HOAs can impose special assessments on owners when they plan to carry out significant repairs or renovations. This comes in the form of an additional fee, on top of regular HOA dues, to cover unexpected or major expenses not covered by the regular budget or reserve funds. So, if you find out that an HOA plans to resurface its internal roads soon, you can use it to your advantage when bargaining with a seller.
- Make your offer. After finalizing which condo you wish to purchase, get your real estate agent to make an offer. Ask your agent if you should include any kind of contingency clause, like a home inspection or mortgage contingency. Keep in mind that you have to pay a cash deposit that serves as earnest money along with your offer letter.
- Apply for a mortgage. Once you make your offer, you have to apply for a mortgage. This requires providing all the information your mortgage provider seeks.
- Get a professional home inspection. While carrying out a DIY home inspection might be okay before making your offer, you must consider getting a professional home inspection before the closing. This step helps identify any existing or potential problems, after which you may decide if you should renegotiate the deal or opt out completely.
- Wait for the closing. If you look at how the mortgage application process works, you will see that the entire process, from submitting your application to the underwriting, can take four to eight weeks. After getting the loan estimate from your lender, make sure you compare it with the closing disclosure and check if there are any changes in the terms and conditions. If you find everything in order, pay the closing costs and sign the paperwork.
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Anyone planning to buy a condo should pay due attention to researching HOAs. This is because while they are responsible for the maintenance and upkeep of their properties, they also formulate and implement rules surrounding how you may or may not use your units. For example, some HOAs prohibit owners from renting out their units on platforms like Airbnb. It is also common to find HOA restrictions surrounding pets, noise, and exterior paint colors.
Getting a detailed breakdown of HOA fees is crucial. Whether they come in the form of monthly or annual, make sure you know just what you need to pay for in advance, and don’t forget to ask about special assessments. Finding out how much cash reserve an HOA has can give you an indication of its financial soundness.
The Types of Loans on Offer
There is no single best type of mortgage for condos, and the one that you should apply for depends on your individual circumstances, although the property itself can also have an effect. Your options include:
- Conventional loans. These loans don’t come with government-backed guarantees, and you may use them to buy a second home or an investment property. You typically need a minimum credit score of 620 to qualify, and better scores result in better terms. As a first-time homebuyer, you may qualify for a down payment as low as 3%, provided you meet the required criteria.
- FHA loans. Backed by the Federal Housing Administration (FHA), FHA loans can work well for people with less-than-perfect creditworthiness. The minimum credit score you need to qualify is 500. Depending on how good your credit score is, the down payment can be as low as 3.5%.
- USDA loans. The United States Department of Agriculture (USDA) backs these loans. While you may apply for one as a rural homebuyer, USDA loans are also available for people who live in suburban areas of large cities, as well as for residents of towns where populations are below 25,000. You need a credit score of at least 640 to qualify. In addition, if you’re wondering how to buy a condo with no money down, a USDA loan might be your best bet.
- VA loans. The Department of Veterans Affairs (VA) guarantees VA loans, and you may apply as a qualified veteran or a spouse. These loans come with no down payment requirements, and you typically need a credit score of 620 or higher.
How Much Do You Need to Put Down When Buying a Condo?
The amount you need to put down as down payment toward a condo depends on different factors. For example, you may qualify to make a down payment of 3.5% for an FHA loan only if your credit score is 580 or higher. If it’s any lower, you need to make a 10% down payment.
If you wish to borrow a large amount and have to get a jumbo loan, expect to pay a minimum of 10% as down payment. If you plan to use the condo you purchase as a second home, expect to pay at least 20%.
When it comes to buying a condo with no payment down, your options essentially limit to USDA and VA loans.
What You Should Know About Buying a Condo to Rent Out
If you’re thinking about buying a condo to rent out, start by finding out if there are any restrictions on lease durations, tenant screening, and the number of rental units. In addition, if you plan to get an investment loan, prepare to pay a down payment of at least 20%.
You need to research average rental rates in the area to estimate potential income and ensure profitability. You should also look into the neighborhood’s livability, amenities, and vacancy rates, and prepare for the effect of potential vacancies on your finances. Developing a thorough tenant screening process is crucial, too.
Using Condos as Vacation Homes
It is common to find condos in places where property values are high, which could be busy urban areas or vacation hotspots, mainly because buying single-family homes in these areas can be cost-prohibitive. This is why buying a condo can be an affordable alternative if you’re thinking about purchasing a vacation home. Buying a condo as a vacation home also means you can have someone look after your property while you’re away at your primary home.
Conclusion
Having gone through this condo buying guide, you should know what it takes to buy a condo for the first time. The ideal starting point is to apply for a pre-approval by getting in touch with a reliable mortgage provider. Then, you may look for options based on how much you can afford to borrow and get one step closer to homeownership.
