What Is A Condo And Should I Buy One?

The responsibilities that come with homeownership can be daunting. Fortunately, different types of properties don’t require as much upkeep as single-family homes. Plus, they’re often much more affordable than standard homes on the market today.

One type of home that might be worth considering is a condominium, also known as a condo. What is a condo? We’ll explain how a condo differs from other types of homes, its pros and cons and your financing options.

What Is A Condominium?

A condominium, or a condo, is a privately owned residential unit in a multi-unit building. According to real estate law, condos are classified in terms of ownership not appearance. Condo owners are responsible for the upkeep and maintenance of their units but not the building’s exterior. The exterior of the building and the land it sits on are owned and cared for by the condo association, but owners must pay a monthly fee to cover the cost of maintaining these areas.

They can also vary greatly in appearance, from looking like an apartment complex to a townhouse or even a single-family home in a suburban area. Here are the most common types of condominiums:

• Condo home: This is a traditional condo where the owner only owns their unit.
• Condo share: This is a shared condo with multiple owners. Residents are allocated use of the condo for a certain time and number of days.
• Detached condo: A standard condo that doesn’t have any shared walls, similar to a single-family home.
• Private condo or private own apartment: A condo that’s rented out to tenants by the owner of the unit.
• Condo building: A residential building made up of individually owned units.
• Condominium developments: The developer owns the land on which the condo building sits, but once the unit is purchased, ownership transfers to the buyer.

Condo Vs. Townhouse

The difference between a condo and a townhouse comes down to what the homeowner owns and is responsible for maintaining. A condo is an individual unit within a building or complex. This unit is fully owned by the resident, and not rented from another owner. Similar to a traditional home, a condo can be bought, owned and sold, and the homeowner is responsible for all care and maintenance of the unit.

On the other hand, a townhouse is a multifloor home that shares one or multiple walls with an adjacent unit. Townhouses are also owned by the resident, and they can also have front yards and backyards which the owner is responsible for maintaining.

Condo Vs. Apartment

A condo and an apartment are very similar in many aspects. They have a similar appearance and size and may share certain common areas and amenities. However, how condos and apartments differ is all due to ownership. A condominium is usually owned by its occupant, while an apartment is rented from a property management company or a landlord.

Another big difference is maintenance. If there’s a problem in an apartment unit, such as a leak or a broken appliance, it’s the property manager’s or landlord’s responsibility to fix the issue. In a condo, all maintenance responsibility within the unit falls on the homeowner.

What Is A Condo Association?

Similar to a homeowners association (HOA), a condo association oversees the residential community, collects payment for association dues and maintains community property, rules and standards. While a condo association and HOA are both very much alike, they aren’t exactly the same.

In an HOA, homeowners are responsible for maintaining their homes and property, while the HOA takes care of communal landscaping, snow removal and sidewalks. Condo associations are responsible for shared features, including the exterior of the condo, as well as maintenance of community spaces and shared amenities like a pool or gym. In some cases, if a large project needs to be done, the condo association will raise monthly fees or levy a one-time charge to all residents in the community. These fees can range anywhere from $50 – $1,000 per month and are typically based on the size of the owner’s condo and their share of the common areas.

Pros And Cons Of Condos

Pros Of Condo Ownership

Below are some of the biggest advantages of condo ownership.

Ease Of Maintenance

Condos generally require less upkeep than other types of property ownership. Many condo buildings or complexes hire professionals to maintain the exterior and common areas, which homeowners pay for through their condo association fees. This means you won’t have to worry about lawn mowing or fixing the roof.

Sense Of Security

Some condo buildings and complexes are located within gated communities. These communities may offer extra security features, such as a doorman or guard service, to keep residents safe. Not all condos offer this level of security, but you are guaranteed to have nearby neighbors in case of an emergency.

Opportunity To Build Equity

Just like a typical single-family home, condo ownership presents the opportunity to build home equity. Equity is the market value of the home minus what you own on your mortgage and is often considered a homeowner’s most valuable assets. When you rent, every payment goes directly to the unit’s owner. Because condo residents own the unit, they can gradually build equity as they make their monthly mortgage payments.

Amenities

Condos sometimes offer amenities and common areas like apartments. Common amenities often include a gym, community clubhouse and pool, but depending on the community, you may also have access to coworking spaces, outdoor dining areas, a rooftop lounge, private outdoor space and more. Although you won’t be required to pay every time you use these facilities, a portion of your monthly association dues help cover costs. Plus, these amenities are all within walking distance from your unit.

Cons Of Condo Ownership

Condo ownership also comes with drawbacks. Here are some downsides to consider.

Condo Association Restrictions And Fees

Condo owners must typically pay fees to their condo associations. These fees help cover the costs of common areas and general maintenance of the community, but your association can decide to increase its fee at any time. This can even happen if one or more members fail to pay their dues in order to fill reserve funds to cover improvement costs.

Condo associations may also impose restrictions on their residents. Common area rules are normal, but associations can also prohibit activities, such as a party, that cause loud noises and disturb other residents and what pets are allowed in the building. Parking could be another issue, as many associations assign just one or two spots to each unit owner, but others may operate on a first-come, first-serve basis.

Lack Of Privacy

Condominiums can offer less privacy than other types of homes. Units are usually pretty close together and sometimes share walls with neighbors. Sounds can easily pass through walls or down hallways within buildings. If you prefer a little more space between you and your neighbors, the lack of privacy may be a deal-breaker.

Less Space

Condos are similar in structure to apartments and usually offer less space than single-family homes. There is also less or no outdoor space. Although a condo may offer less personal space, there are often shared facilities for activities.

No Land Ownership

Condo Financing

Financing a condo isn’t necessarily the same as taking out a mortgage for a traditional home. The lending process for a condo typically requires a few extra steps, but you generally have access to similar financing options.

• Conventional loan: A fixed-rate or adjustable-rate mortgage usually requires a minimum credit score of 620, enough cash for a 3% down payment and a debt-to-income (DTI) ratio below 50%. Guidelines are set by Fannie Mae and Freddie Mac, which means the condo must be warrantable.
• VA loan: The Department of Veterans Affairs offers VA loans for condos. This type of loan is only available for military service members, veterans and eligible surviving spouses. You can also check the status of a condominium to see if it’s on the VA-approved condo list.
• FHA loan: An FHA-approved condo can be financed through the Federal Housing Administration. You’ll need a credit score of at least 580, cash for a 3.5% down payment and a DTI of 57% or lower. You can use the U.S. Department of Housing and Urban Development’s (HUD) tool to find condos approved by the FHA or look up a specific condo.
• USDA loan: The U.S. Department of Agriculture (USDA) offers a 0% down payment mortgage to low-income borrowers in rural areas to buy a condo. There’s no minimum credit score requirement, but you must meet the USDA’s income limits. The USDA’s property eligibility tool can help you determine what condos qualify for financing.

FAQs: Condominiums

Below, you’ll find the most frequently asked questions about condos and condo ownership.

Are condos a good investment?

Condos typically have lower purchase prices than standard homes and also appreciate over time and allow homeowners to build valuable equity. Condos can be a good investment for home buyers to use as a primary residence or vacation home and for rental property investors.

Are condos cheaper than houses?

Yes, condos are usually cheaper than houses. Condos tend to be more affordable because they don’t include land, but buyers should also consider condo association fees. In some communities, these fees can be as much as $1,000 per month.

How much is a condo?

As of April 2024, the average sale price for a condo was $356,300, according to the National Association of REALTORS®. However, condo costs in your area depend on local market conditions, the community where it’s located and the unit’s size.

How much are condo association fees?

Condo association fees range between $50 – $1,000. The amount a homeowner pays depends on the unit’s square footage, whether the building is a high-rise, the number of buildings within the complex and the covered amenities.

Do condos require homeowners insurance?

Yes, mortgage lenders require homeowners insurance for condos. Owners will typically need a personal condo insurance policy to insure their specific unit, also called HO-6 insurance. The amount of dwelling coverage necessary depends on the condo association’s master policy.

Can I rent a condo?

The Bottom Line

Condos come with all the perks of an apartment, such as access to a pool, gym and other amenities, and you won’t have to worry about lawn mowing, raking leaves or shoveling snow. But there are downsides, too. You’ll need to pay condo association fees, and financing a condo could be trickier than buying a single-family home. Before buying a condo, weigh the pros and cons to see if it’s the best decision for you.