Mortgage

5 issues to know earlier than shopping for a house

Is Buying an Apartment a Good Idea?

Buying an apartment can be a good idea. Prices are often cheaper than single-family homes, and many condos have luxury amenities for their owners.

And when you're at a stage in your life where you don't have the time or the skill to maintain, a condo can provide a (literally) low-maintenance environment.

Of course there are downsides too. Condos come with expensive monthly fees and restrictions on how you can use the space.

You can still decide that an apartment is the right choice for you. Have millions. However, you should know what to expect before you buy.

Review Your Eligibility to Buy Condo (April 22, 2021)

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What do I need to know before buying an apartment?

When you buy a condominium, you take ownership of a unit in a larger building or development. You will own your individual device and will be responsible for its internal repairs and maintenance.

But the building itself and any surrounding land will belong to someone else. This is usually a legal entity (the Homeowners Association or "HOA") owned and controlled by you and the other condominium owners.

So you have a legal interest in your building and its surroundings. And you have "easements" that grant access and fair usage rights to the property. However, you only own your specific device.

That's not necessarily a disadvantage. In fact, it usually works well for all parties. But there are both advantages and disadvantages to be aware of.

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1. Condominiums are often cheaper – but not always

Buying a condominium offers two key advantages:

You can get more bang for your buck with a condo than you would with a typical single family home. There are usually additional amenities: pools, gyms, tennis courts, landscaped outdoor areas, extra security, etc.

However, these perks are not necessarily free.

More for your money

Condominium prices are often lower than “traditional” property prices. Therefore, a condominium could be a cheaper starter home for a first-time buyer. And you get the extra amenities mentioned above.

However, you should look at the monthly home ownership costs as well as the pre-purchase price.

This is because the homeowners association fees could make an apartment more expensive than a comparable home by the month.

You don't have to worry about mowing the grass, cleaning the common areas, or climbing a ladder to paint the exterior of the building. But someone has to. And you have to pay them along with all other unit owners.

You'll also need to sign up for other costs like home insurance.

When you add your monthly HOA or condominium fees to your mortgage payment, you might end up paying less for a single family home, even when you factor in the cost of house and yard maintenance.

See: Mortgage calculator with property taxes, PMI and HOA fees

For example, look at these two examples.

Flat:

Purchase Price: $ 250,000 Monthly 10% Discount Mortgage: $ 1,377 HOA Fees: $ 200 / month Total: $ 1,577 / month

Detached house:

Purchase Price: $ 275,000 Monthly 10% Discount Mortgage: $ 1,553 HOA Fees: $ 0 Total: $ 1,553 / month

In this case, the house is about $ 20 a month cheaper than the apartment. And those savings will worsen over time. So do the math before buying.

You pay for amenities

When choosing a condominium with lots of fancy amenities, you need to be aware that you will be paying your share for them all – whether you use it or not.

The pool and gym in the brochure will impress your visitors. However, if you never use the facilities, there may be cheaper ways to gain prestige.

For example, if you opt for a single family home, you can always get a gym membership, which would certainly cost you less than a condo and its amenities.

2. The condominium mortgage requirements are stricter

You may have heard that a condominium is more difficult to finance – and it is true that securing a mortgage for a condominium comes with some unique challenges.

Lenders take a particularly close look at condominiums to make sure they meet the specific requirements. And some condos don't.

But don't let these challenges put you off – here, too, millions of people have successfully financed homes this way.

Is your home eligible for a mortgage?

Whether or not you will be able to obtain a mortgage will depend on your specific condominium building and the type of home loan you are planning to take advantage of.

For example, your condo development must be on an approved list in order for you to receive a mortgage that is secured by the Federal Housing Administration (an FHA loan). Fortunately, the HUD website has a lookup tool that you can use to find out if your home has been approved.

What if you want a conventional loan? When this happens, your condominium complex will need to go through a "limited review process" which the mortgage lender determines is a safe investment.

Fannie Mae – one of the two agencies that regulate these mortgages – has a great resource for home buyers: "Condo Buyer's Guide – What You Need To Know When Buying a Condo."

Fannie suggests, "You should examine the apartment carefully before making your offer to buy. You want to know:

"Are there any specific assessments (such as condominium capital improvements) that will have a long-term impact on your cost of owning the condominium unit or the value of the building?" Are there any major lawsuits pending against the condominium association? Developer who may limit your ability to get funding to buy the home? This is a question that you should discuss with your lender. "

If you run into a problem with both, you should probably move on. And if you're not sure what "reviews" are, we'll explain it below.

You can ask your real estate agent or lender if the home you are looking to buy meets your lender's rules.

Check Your Mortgage Mortgage Eligibility (April 22, 2021)

3. Condominium "reviews" can cost you thousands

A well-run HOA or condominium company should normally save a ton of money. It should charge each owner a little more than it takes each month to build reserve funds. This way it can be paid for for repairs and maintenance with large entry tickets when they become necessary.

But not every HOA or condominium company is well run. So if the roof needs to be replaced, or the central air conditioning fails, or the windows need to be replaced, there is not enough money in the bank to cover the costs.

Then "assessments" come into play.

When you buy a condo, you have an opportunity to read the HOA's books. You should definitely do this.

These are huge bills that suddenly land in device owners' mailboxes, demanding large sums of money for inevitable repairs. That can be thousands or even tens of thousands of dollars.

When you buy a condo, you have an opportunity to read the HOA's books. This is something you should definitely be doing.

If you have no idea what to look for, ask a friend who will do it or hire a professional. Reviews are not a joke.

Of course, if you find that large appraisals are in the pipeline, it will drastically reduce the property's value. So see if the current owner is liable for these or receives a price cut that reflects the threat. Otherwise go away.

4. You must adhere to the HOA rules

When you buy a condo, you receive a copy of the Covenants, Conditions, Restrictions and Easements (CC & Rs) of your HOA or condo company.

This is important information. First, you will learn what belongs to you in your unit and what responsibilities the HOA has.

For example, windows and exterior doors may or may not be yours, which means that you may or may not do their maintenance yourself. And central air is usually a common amenity, but individual air conditioners are often not. Your CC & Rs will spell these things out.

CC & Rs also set the rules by which you must live.

There may be restrictions on things like pets, noise levels, hanging out laundry, parking, or even internal improvements you want to make to your device.

Of course, these are rules and regulations that you don't need to follow if you live in a single family home. Since you are in the same building, living in an apartment complex can sometimes feel similar to renting an apartment.

Most of the time, such rules are fair and reasonable and exist to protect the majority. But occasionally, an HOA may create rules that some members find oppressive.

So make sure you are happy to follow the rules of your HOA. They are not optional. And some HOAs can be very contentious.

5. You share liability with your HOA

Your shared interest (partial ownership) in your HOA may mean that you share liability for their problems. So if it's a building that is full of flaws, you might be able to pay for some of the remedial action.

If your HOA sues a developer for liability, you may have to contribute to legal costs – and take some risks if the HOA loses in court. In fact, you are practically an undisclosed party in any legal action that the club is involved in.

You might prefer to stay away from an HOA that is currently embroiled in serious litigation or that seems to be bringing lawsuits in the blink of an eye.

Is it worth buying an apartment?

If you like the benefits of buying a condo, don't let the potential drawbacks put you off.

Now you know exactly what to look for and what to avoid. So your chances of picking the perfect place are better than most people.

However, if you are still unsure whether you are suitable for condominium living, there are three key factors you can use to make the decision easier: affordability, location, and maintenance.

Affordability

Previously, we compared the cost of a single-family home with a condominium.

At face value, buying a condo can be significantly cheaper. In 2020, the average unit sold for $ 266,300, while the average single-family home sold over $ 300,000.

When it comes to monthly payments, condominium costs can skyrocket thanks to HOA fees, which are often a few hundred dollars a month.

So when considering a condominium versus a standalone house with comparable sticker prices, be sure to take a close look at the monthly costs and see how they compare against each other.

A condo may not be too much more than the other options available, and the added amenities can make the pot sweeter.

place

Do you prefer an urban, suburban or rural setting? Often times when you buy a condo you are in or near a city by default.

In an urban setting, you can find grocery stores, restaurants, entertainment and more, often just steps from your doorstep. Living in or near a city can also get you closer to work and reduce commute times. Many buyers will appreciate the convenience this offers.

But if you prefer the tranquility that a more rural setting can offer, an apartment probably wouldn't make you happy.

In addition, many condominiums have patios, courtyards, or other outdoor spaces for owners to enjoy. Remember, however, that these areas will be shared with your condominium community. A condominium doesn't offer the same privacy and space that you often get with a standalone home purchase.

maintenance

Do you prefer a low-maintenance home? If you live in an apartment, your only responsibility is to take care of your interior. The rest of the building and its exterior are someone else's responsibility.

That means the maintenance chores that often weigh on homeowners, like landscaping, shoveling, and cleaning gutters, are not a problem for you. (Just remember, you pay for these amenities in the form of HOA fees.)

What are today's condo mortgage rates?

Condominium mortgage rates are usually slightly higher than the single-family home loan rates.

This is because home loans are considered riskier. The quality of the loan depends on factors other than the borrower's income and creditworthiness, such as: B. How well the HOA manages its funds.

However, today's mortgage rates are consistently low. So there are good deals out there for condo buyers. All you have to do is shop around to find your best deal.

Check your new tariff (April 22, 2021)

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