Buying a condominium is a good way for a first-time buyer, retiree, or family who wants the amenities offered in many condo neighborhoods, to live a carefree lifestyle. If, that is, you buy into a community that has increasing values, competent management, and neighbors who are also owners, instead of renters. If you are looking to purchase a condo, make sure you research the following things first, making a long-term commitment that could result in more headaches than enjoyment.
How to buy a condo includes issues that are unique to condominium ownership that require research before you purchase. The items below can save you the headache of buying a condominium with a bad homeowners association (HOA), or more units rented, than owner-occupied.
How to Get a Loan for a Condo?
Not as easy to acquire a loan for as a typical home, lenders have different requirements for those buying condos. They may have loan-to-value ratios that are more restrictive and require that a certain percentage of the units are owner occupied. They may also require that that one person own no more than 10 percent of the units in a building. They may also be disinclined to offer a mortgage in a development unless a certain percentage of the units are sold.
Rather than a traditional mortgage, FHA offers loans on condominiums that fit their criteria. The HUD Section 234(c) program insures a loan for 30 years to purchase a unit in a condominium building. The requirement to meet FHA standards is that the building must contain at least four dwelling units. Purchasers who are eligible of FHA loans will be able to purchase a condominium with a low down payment and thirty years to pay the loan.
What are Homeowners Associations?Â
Charged with the management of a condominium community the HOA will often hire a property manager to oversee the day-to-day maintenance and needs of the community. A bad HOA can cause you to lose value in your condo before you ever move in if they are mismanaging the monthly fees paid by homeowners. A properly managed association should retain 25 percent of their gross income in reserve for property repairs and emergencies. An underfunded HOA can cost you and your neighbors special assessments if they don’t have funds in reserve for these issues.
When you find a condominium community in which you are interested, research their HOA by requesting the minutes from recent board meetings, asking current residents about the HOA and management of the condo. Research the financial health of the association to make sure that the have adequate funds in reserve and there are no delinquencies or bankruptcies.
While researching the HOA, check the delinquency rate of fees for current homeowners. A high delinquency rate can indicate an underfunded association that could possibly dip into your pocket deeply if they run short of funds for a roof repair, or a pool pump. Get a copy of the HOA’s insurance policy, too, if you can.
HOA’s are required carry Fidelity coverage to protect them from inappropriate use of funds, theft and embezzlement by members of the HOA board. Your lender will want to know that the HOA has sufficient insurance before they will consider a loan for a condominium.
One of the beauties of living in a condominium community is the easy living lifestyle that comes with no lawn care, painting of the house or roof repair. However, this carefree life does have a cost. The fees associated with membership to the HOA can be as low as $200 per month and can go much higher. It is a monthly cost that you need to be aware of and an expense above your monthly mortgage, tax and insurance amounts.
Generally, HOA fees pay for lawn care, maintenance of buildings and facilities and may include trash pick-up, water and basic cable, depending on the community. If you consider the standalone costs of these items, and HOA fee seems reasonable if they are not overly high and out of your reach.
Are you insured?
Along with Fidelity coverage, you should research the HOA’s master insurance policy to see what it does and does not cover. They usual cover the roof, siding, elevators but you will be responsible for anything that happens inside the walls of your home. However, other HOA’s may offer all-in coverage, which covers everything but your personal belongings. Before purchase, be sure that you know who is covering, what.
Is this the Lifestyle for You?
You need to consider, too, whether you are suited for the condominium lifestyle. Subject to the covenants, conditions, and restrictions (CC&R’s), many individuals find these rules to be restrictive, you will want to read the CC&R’s of the HOA as part of your research. They may be so outrageous that living in the community could be more constrictive than you like.
This is especially true for those moving from a single-family residence into a condominium lifestyle. On the other hand, living where you needn’t worry about the lawn being mowed or the pool cleaned can make up for the minor inconveniences of CC&R’s, which are there to protect your home’s value and those of your neighbor.
How Should You Research Buying a Condo?
You can find many tales of woe from buyers who have not taken time to learn how to buy a condo. Tales of underfunded HOA’s slip shod maintenance practices and plummeting home values are not the norm but it does happen. Do your research, spend time in the community to get a feel for it, and you can make an informed purchase that will increase in value and give you a wonderful place to call home.
2 Point Highlight
How to buy a condo includes issues that are unique to condominium ownership that require research before you purchase.
Not as easy to acquire a loan for as a typical home, lenders have different requirements for those buying condos.
