Priced Out of Single-Family Homes? Maybe a Condo is Your Best Choice.
Rising mortgage rates mean that millions of homebuyers have been shut out of the market. That, coupled with home prices that are currently up 14.2% compared with last year, means many buyers are simply giving up on their dream of owning a home right now. But what if you don't want to?
Many buyers are now considering another option for homeownership: condominiums.
These privately owned units within a largr complex actually proved more affordable than single-family homes in 72.5% of U.S. counties in 2021.
Buying a condo vs. a single-family home
The process of buying a condo differs from that of a single-family home in a few key ways.
One menaninful difference is that many condominium homes cannoy be purchased using government-backed loans such as Federal Housing Administration loans or Veterans Affairs loans. In order for a condo to be purchased with a FHA loan, it must be on the FHA's list of approved condominium projects. And the same goes for condos purchased with VA loans; the condo must be approved by the VA in order for the borrower to purchase the unit.
A condo purchase also typically entails getting a higher morgage rate than a single-family home purchase. Why? Mortgage lenders see condo purchases as riskier than single-family home purchases. On average, expect to pay an additional 0.75% on a condo loan.
Mortgages for condos can be more complicated due to the nature of the shared building. There are implications for lenders, so not all condos will qualify for loans. Plus, there will be a homeowners association and monthly HOA fee to work into your budget.
Buy a condo if you like the idea of community living
The biggest difference between a condo and a detached single-family home is the inherent group setting. There are implications for everything from your lifestyle to your yearly home maintenance chores.
The advantages of buying a condo instead of a single-family home include lower maintenance costs, since the condo association is responsible for things like landscaping and snow removal. You also won't need to worry about things like painting the exterior or repairing the roof. Plus, condos often come with more amenities than single-family homes, like swimming pools, fitness centers, and clubhouses.
Buy a condo if you’re young or retired
Condos are especially attractive for people at certain stages of their lives. If you're young or retired, you might not like the idea of having to deal with yard aintenance or exterior upkeep.
Single-family homes require more maintenance. Condo owners can enjoy the comforts of having their own home, without the hassles that come along with a detached house. A condo is also a great option for young people or retired folks who live on their own.
Don’t buy a condo if you haven’t fully vetted the HOA
When you're investing in a condo, you're also investing in the homeowners association behind it.
You really need to do due dilignece on the HOA and the financial well-being of the neighborhood you're buying into. You need to understand the rules and regulations. Contact the community's property management company and ask to see financial statements like the balance sheet, the income and expense statement, and the cash flow statement. Make sure there is enough money in the reserve fund to take care of capital improvements.
Plus, inquire about any potential projects the HOA has in the works and consider how they may affect your life. The board might ask all HOA members for a financial contribution to the project.
Don’t buy a condo if you want to leverage your investment
Historically, single-family homes appreciate faster than condos.
A single-family will always be worth more because you own the land. You should consider the ratio of land cost to structure cost. Structure depreciates, while the land appreciates. Real estte is considered a safe and good investment, but the more your purchase price is attributed to land value, the better.
“I’m Priced out of Single-Family Homes. Should I Buy a Condo Instead?” Real Estate News & Insights | Realtor.com®, 4 Sept. 2022, www.realtor.com/advice/buy/should-i-buy-a-condo-if-i-cant-afford-a-single-family-home/.