You may be surprised at the many aspects to consider before purchasing a condo. Not only do the physical elements differ from a freestanding home, the entire decision-making process to obtain a loan and purchase a condo also varies.
Condominiums may be a smart investment for a certain kind of buyer, but before purchasing, be sure to do a run-through on the following situations as a condo buying checklist and have an agent assist you, as the issues surrounding such a purchase can be complex.
The majority of condos are located in urban downtown neighborhoods and sometimes even built right into the development of businesses for convenience. However, with these aspects typically comes more noise and congestion.
If you are considering a specific location, check it out at different times of the day and night to see how it’s livelihood will match your needs. If noise or light is an issue for you, this may not be the right choice. But, condos may be an attractive choice for those wanting to be centrally located in a big city.
Another thing to consider with condo ownership is the Homeowners Association (HOA), which sets conditions and restrictions that the condo owner must abide by in order to live there. Since condos offer low maintenance, this can be an attractive feature for those seeking less home to physically manage.
Purchasing a condo is known to be more complex than purchasing a house, as lenders tend to be more cautious of giving out loans for this type of residence. They usually require that a certain percentage of the units be filled, or that they are occupied by the owner. Another restriction may be the number of condos allowed to be owned by one investor. Usually, lenders do not want one person to own more than 10% of the units in a building. Often, lenders may also regulate the building’s occupancy rate, requiring at least 90% of the units to be sold in order to offer financing, and could have tougher loan-to-value ratios and restrictions for condo purchasers.
There are Federal Housing Administration (FHA)-backed mortgages for condos for up to 30 years. While the terms for borrowers are similar to those on housing loans, there are many restrictions on condos.
There may be other costs involved with owning a condo. Even though the HOA offers insurance, it is likely that you would still need additional homeowners’ coverage as well. Read all documentation thoroughly and be sure that the insurance offered by the HOA doesn’t shift risk to you in order to achieve lower premiums.
Also, ask to obtain paperwork from recent board meetings to determine how much the HOA dues have increased over the past few years.
Avoiding Other Common Issues
Sit in on an HOA meeting and talk with current residents of the complex to see if they are happy with how the condos are managed.
Be sure to research the board’s litigation history, both for taxes and other general issues. There may be lawsuits involved that you may not want to be associated with.
Consider reviewing financial records for delinquencies and reserve funds for emergencies and repairs and checking out recent property tax assessments. If your condo sale price is low, but the tax assessment is high, there may be a higher tax bill than expected.
About Transparity Insurance Services
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