Tutorial: How To Buy Your First Home
What's a condo?
In a condominium (commonly known as a condo) some parts - your residence - are owned privately, while others - common areas - are owned collectively by all of the condominium's residents.
A less technical way to think of a condo is an apartment that you own. In practice, condos often take the form of an apartment or similar shared complex, but theoretically, a condo could physically look like anything.
Condos are especially popular in places with high property values - vacation hotspots and urban settings are both places where you can expect to find them on the market. This is largely because buying a single-family home can be prohibitively expensive in places where additional building space may be scarce. As such, condos can open home ownership to whole new groups of people Therefore, if you're ready to own your own home, but can't quite afford a house, a condominium could be a way for you to get into the market.
Searching for the Right Condo
Looking for a condo involves the same process as shopping for a single-family home. If you have a general idea of what you're interested in, going to a real estate agent can be a great way to find out about properties that you might not be able to find on your own.
If you're more of a do-it-yourself person, you can search real estate websites and listings for condos in the area you are interested in. If you have a specific building or complex in mind, many offer on-site sales offices where you can learn more about the condominium and perhaps even view a show suite.
The Condo Sales Contract
It's not just the sales contract that you have to think about when you're buying a condo; condos also have an agreement, or declaration, that dictates the way the condominium operates and is governed. Before buying your condo, you should request and read the documents that apply to the management of the complex. What are the hot issues for this complex? How big is the condominium's reserve fund? How does management deal with owners' requests and complaints? Does the condominium impose strict rules and guidelines on owners that you would be unhappy with? You need to get a sense of whether the condominium you are considering is well run, whether the rules and restrictions would allow you live the lifestyle you're seeking and whether the building/complex is experiencing any problems that could hurt the value of your share of ownership in the future.
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Why a condo?
There are lots of reasons that a condo might be a better fit than an apartment or single home, and money is surely one of them. According to The Real Estate Journal, condo prices tend to appreciate at a slower rate than single-family dwellings, making them a more affordable choice in markets where prices are on the rise. And, compared to renting an apartment, because you actually own your condo, you can take advantage of tax deductions such as the interest on your mortgage.
A condominium is a form of ownership in which owners share an interest in common areas, such as parking structures and shared yards, and hold title separately to their individual units. Owners are members of a homeowners' association, or HOA, which enforces and amends the association rules and regulations. Depending on your personal preferences, there are advantages to buying a condo instead of a house.
Costs A condominium generally costs less than a similarly located and sized single-family home. Because the overall cost is lower, both the monthly mortgage payment and the property taxes will be lower. Even with the HOA fees, which are used for maintenance of shared features like landscaping, your total monthly carry costs may be lower.
Lenders will actually help you understand whether a complex you want to buy into has a stable financial environment or not. They will look at the HOA reserve fund and the percentage of units occupied by owners as opposed to tenants. They will also look at the insurance coverage if it is maintained by the HOA instead of individual condo owners. If any one of these areas is not up to their standards--usually requiring a reserve fund consistent with the HOA rules, more than 50 percent owner occupancy and insurance that will at minimum repay all unit mortgages, they will not lend for a unit there. This is a good thing. It will help ensure that when you do buy a condo, it will be in complex that is economically viable.
Amenities and Maintenance-Free LivingIf you do not like the responsibility of keeping up the grounds around your home but enjoy lush landscaping, the HOA yard maintenance will be a feature you like. If your condo complex has a pool or other amenities you enjoy but could not afford for yourself in a single-family home, a condo may work for you. You won't have to clean the pool or check the hot tub chemicals. It will all be done for you.
Convenient LocationsIf you want to live in the heart of a densely populated urban area, in close proximity to a wide array of commercial uses, a condominium may be your only choice of housing. Land values in many downtown locations are prohibitively high for the construction of single-family homes. Living in a downtown condominium will open doors to cultural and sporting events you might never consider commuting to on a regular basis.
Other ConsiderationsCondo complexes often have security features that very few single-family home owners could afford--everything from a gated entrance to 24-hour security guards. Additionally, because each unit is in such close proximity to others, your neighbors can serve as eyes and ears even when you're away.
Conversely, it's important to remember that the purchase price isn't the only thing to consider when you're buying a condo. Most co-ops and condos have monthly fees for upkeep of the common property (these can be costly) and, unlike renting an apartment, you'll have to pay property taxes, too. (To learn more, read Five Tricks For Lowering Your Property Tax.)
Granted, it's not all about the money. Condos also provide attractive lifestyle choices for many prospective buyers. They're especially popular for retirees who want to be able to socialize or take advantage of services at communities that cater specifically to seniors. Living in a condominium can also free you from some of the usual chores that go along with owning a house, such as yard and exterior maintenance. (To read more about this topic, see Downsize Your Home To Downsize Expenses.)
Finally, condominiums can also make owning a vacation home more affordable. In the United States, condos became popular as a more reasonable way to buy a little piece of paradise in places like Florida and Hawaii. If you want to relax at the beach, but cringe at the thought of buying a pricey house down in the sunshine state, condos offer a somewhat less expensive alternative. (To learn more, read Investing In A Vacation Home.)
The Bottom Line
If you're thinking about buying real estate, whether as an investor, vacationer or year-round resident, condos are definitely something that should be on the radar. This is especially true if you're looking at an area where real estate is expensive. Condos aren't inherently better or worse than any other type of residence, but depending on your situation, a condo or co-op could be a fantastic choice as a homebuyer.