How to Buy a Condo?CASAPLORERTrusted & Transparent
What You Should Know
- A condo is a single unit owned by an individual, in a large complex with multiple units
- Condominium complexes are typically run by an association such as the Homeowners’ association
- A few areas of concern when purchasing a condo include the lifestyle a condo provides, the condo’s association rules and fees, as well as the financing available to purchase the condo
- FHA and some conventional lenders only approve of specific condo developments based on their finances
What is a condo?
A condominium, also known as a condo, is a single unit owned by an individual, in a large multi-unit complex. The complex includes multiple condos and shared spaces, such as pools, terraces, or board rooms meant to be used by its residents. These common areas are owned by all the owners and are usually managed by a condominium association.
Associations such as homeowners’ association, help in managing the building, its amenities, maintenance and set rules to make co-living as peaceful as possible. The association charges a fee for their services which the owners of the condos need to pay.
Condos present a good opportunity for people who are not ready to take on all the responsibilities that come with owning an entire house but are tired of renting an apartment. If you are someone who does not want to deal with a house’s upkeep, maintenance and enjoys socializing with others, then condos may be the right choice for you.
Step-by-step guide for buying a condo
If you are interested in purchasing a condo, however, you are not too sure where to start, the following steps will give you a rough idea of what you need to do before you make the final decision to purchase.
Step 1: Decide if condo living is right for you
Living in a condo is very different from living in a single-family house. That is why before searching for condos, you first need to know exactly what you are getting into. Condos have many perks such as not having to worry about the building’s maintenance, accessing amenities that you may otherwise not have afforded in a separate house, and having the opportunity to socialize with your neighbors. However, if you are someone who values their privacy or who doesn’t want to follow rules set by others, then condo living may not be for you.
Make sure you weigh the pros and cons of a condo prior to making a decision.
|Affordability||Less Private Space for Family Members|
|Less Maintenance||Less Privacy|
|Urban Location||More Fees|
|Extra Amenities||More Rules|
|Enhanced Security||Investment Risk|
|Opportunities to Socialize||Limited Outdoor Space|
Step 2: Hire an experienced real estate agent
A real estate agent who has experience in dealing with condo purchases and sales can help you not only find the right place but also guide you and review the documents, contracts, and their terms. While it is possible to find condo listings on your own, you probably lack the knowledge that a real estate agent has on the condo market and the challenges that living in a certain condo may present. The agent can play a big part in researching the building, its management, and the surrounding community. These aspects greatly affect someone’s quality of life when living in a condo.
Moreover, besides making sure you find the right condo, a real estate agent can help you in understanding the contracts that you have to sign. Typically, you would only sign the final sales contract, however, with a condo, you would also have to sign a contract agreeing to the rules and terms of the association. The real estate agent can help in the process of reviewing these documents.
Step 3: Make sure the condo is FHA-approved
If you are planning to apply for an FHA loan to finance the purchase of your condo, the condo should be on the list of properties approved by FHA. Aside from reviewing the finances of the individual, FHA also looks at the finances of the condo development when deciding whether to approve a loan application. You can find a list of approved condos on the FHA website.
Step 4: Narrow down your search by choosing amenities
One of the main benefits of living in a condo is having access to various amenities that you may not find in other types of residences. To save time and make the process faster, choose condominium complexes that offer the amenities you are interested in. For example, if a pool table room is a deal-breaker for you, then remove all other options from your list.
Even if you are not too invested in the amenities a building has to offer, you should still take them into account. Amenities increase the value of your condo so that if you, later on, decide to sell the place, you can make a good return on it.
Step 5: Research the property management firm
When you live in a condo, the maintenance of the exterior space outside your single unit is typically handled by a property management firm. This means that everything from lobbies, elevators, and amenities is their responsibility. While they have the duty to clean and maintain all these areas, some firms may be negligent and not pay attention to what needs fixing around the building. This can be very frustrating for the residents of the building as they are the ones who use the common spaces more often. Imagine that you live on the 25th floor. The button in the elevator on that floor is stuck and doesn’t work. You have contacted the property management firm but haven’t heard back from them in 2 weeks. Now you have to either go to the 24th floor and climb to the 25th or stop on the 26th floor and go down from there. What a hassle!
This is why it is very important to do some research on the company that is running your building. Look at online reviews or see if you know someone living in a building also managed by them. You can also make an inspection around the building yourself and see the condition common areas are in.
Step 6: Find out the fees of the condo association and what they include
Condo associations charge a fee to the residents of the building for the services that they provide. In the long run, because of these fees, condo living can become much more expensive. These fees will also be used by your lender when calculating the amount of your monthly debts. It is important to know exactly what the association fees are and what they are used for. Typically, they cover expenses such as insurance and maintenance.
However, when they are not used towards these daily operational costs, association fees should go towards a community reserve fund that will be used in cases when huge repairs need to be made. It may be a good idea to find out how much an association has saved in reserves before purchasing. Imagine if you just purchased a condo, and you find out that the roof needs to be replaced. There are no reserves, therefore, the residents are asked to split the cost.
Association fees can also include things such as grass mowing, snow shoveling, trash pickup, road maintenance, and more. In other cases, where the condominium complex includes amenities, high association fees may relate to the upkeep of these amenities. As a resident, even if you do not use them, you will still have to pay for them.
Sometimes HOA collects special assessment fees to fund big projects that may include repairing or upgrading, that the condo association plans to conduct. It is important to know about these special assessments beforehand as your monthly association fees can increase for the time the project is being conducted. You can ask to review the association’s documents on any upcoming projects to have an idea of what you are getting into.
Step 7: Learn about the rules and regulations of the association
Unlike living in a single-family home where you can set your own rules, if you are living in a condo, you will have to follow the rules of the whole community. These rules are in place to make co-living as peaceful as possible. It is a good idea to research the rules and restrictive covenants the association has prior to making a decision. They can include anything from quiet hours to not being able to rent out your unit in the short term.
For example, imagine that you bought a vacation condo to use for the summer months of June, July, and August. You do not plan to use the condo for the rest of the year, so you decide to rent it out to earn some extra income. After your purchase, you later find out that the association rules do not allow short-term rentals. This would take a considerable portion of your earnings and would have probably made a difference if you knew about it before purchasing.
Other important rules to look over include the association’s policies on pets or parking. For example, some complexes only allow certain types of dogs, usually measured by weight. Other places may have rules regarding parking. Learn about how many spaces are allowed for each resident and whether visitors have to pay for parking.
Step 8: Talk to your neighbors
No matter how much you research the association, building, and look over their documents, noone can give you a better feel of what living in the complex is like other than your neighbors. Talk to the residents of the building to see if there are things they dislike about the place or what they wish they knew prior to purchasing. Ask about the community and the dynamics between the residents in the building.
Step 9: Obtain financing
While we mentioned that financing for condos is somewhat more complicated than a single-family house, if the lender approves of the condo, much of the process is the same. You would need to put a down payment and pay for closing costs. Condos offer low down payments options, typically 10% of the purchase price. However, the closing costs of purchasing a condo can be higher.
Similar to FHA, conventional lenders might have requirements too regarding the condominium development you have chosen and they may require to look at the finances of the condo in order to approve your mortgage application.
Buying a Condominium vs a House
Condominiums are often less expensive than houses, and they do not require as much maintenance. On the other hand, condominium ownership does not imply land ownership while house ownership also includes land. Moreover, condominiums are usually managed by an HOA, and condominium owners must pay monthly HOA fees. These fees vary depending on what services are included and what amenities are maintained in the condominium complex. Condominiums tend to have less space than a house, which means it might not be the best purchase for a large family, but they would fit well for a small family that does not have enough funds to purchase a house.
From the investment perspective, houses tend to appreciate faster than condominiums, but they cost more and require a larger down payment. Houses also require more maintenance from the owner, so if the owner chooses to work with contractors, the maintenance costs may get quite large. Condominium owners do not have to worry about maintenance for the most part, but they should be aware of the fees associated with owning a certain condominium. Houses tend to sell more than condominiums, so the owner of a condominium should be aware that it might take more time to sell their property.
The process for buying both a condominium and a house is similar. The largest difference between the two is that it is important to research HOA fees for a condominium and see how the property management company operates. Since the owner is responsible for a house, a house buyer does not have to worry about HOA fees or a property management company. In a condominium you have less worry about the maintenance of the building, since any problem with the building would be the responsibility of the HOA to take care of. You would only be responsible for fixing any problem inside your private unit. Still serious problems can occur inside your unit and if any things goes wrong with the building you would be contributing to the cost for fixing that problem. Thus it is very important to know about longevity of different components of your unit and even different components of the building before finalizing your offer. Thus an inspection cost might be still worth paying.
Buying a condo in NYC
The process of buying a condo in NYC is similar to the rest of the country. Condos in New York are typically found in newer neighborhoods in the far East and West. Once you have hired a real estate agent and found a condo that you are set on, you would need to receive financing through a mortgage.
To show the seller that you are serious, you should consider getting pre-approved for a mortgage priorly. This will also help you determine if you can afford a specific condo or not. Your real estate agent can then help you fill out a REBNY financial statement and make an offer on the place. After this step, you would need a real estate attorney to investigate the building, the unit, and its finances. This process is also known as due diligence. If there are no issues, then you will proceed to put some funds in an escrow account.
To receive funding, you would have to officially apply for a mortgage, however, you first have to make sure that the lender can provide financing to purchase a condo. The lender will need to conduct an appraisal to make sure that the value of the condo matches the price. At this point, the title search is also conducted to make sure that there are no other liens on the home’s title.
In New York, you may need to submit a condo board package. This typically includes basic information about the sales transaction and some reference letters may be requested.
Buying a condo in Florida
If you want to buy a condo in Florida, you would have to go through the typical stages of purchasing. However, there are some things that apply to Florida specifically.
First, Florida condominiums are not-for-profit organizations. Therefore, Florida condos are often run by volunteers, who may not be equipped to manage and deal with the documentation and laws of running a condo.
Secondly, Florida laws have made owning a condo in Florida riskier than before. The laws passed by the State of Florida allow investors or developers to take over condo governing boards when only 20% of the units are owned by individual condos. This means that Florida condo owners risk losing their homes.
Buying a condo in Chicago
If you want to live in downtown Chicago, a condo is an affordable solution that you should consider. Choosing the neighborhood and building you want to live in is an important step of the process. You will need to look at the condo association, how it runs the condominium, its finances, and how these can affect your financing options. Keep in mind that to receive an FHA loan, the condo would have to be approved by FHA lenders.
Other things to consider when purchasing a condo in Chicago are the rules and policies of the condo association and the fees that the association imposes for the management of the building.
Buying a condo in Los Angeles
Buying a condo in Los Angeles involves the basic steps of getting pre-approved for a mortgage, connecting with a buyer real estate agent, and searching for your ideal condo in LA. Condo prices in LA and their association fees vary greatly depending on where your condo is located, so a mortgage pre-approval would also serve to determine how much you can afford in Los Angeles.
If you notice that there are many offers on the place you are interested in, you can consider making your offer more attractive by waiving contingencies or writing a letter to the seller directly. After your offer has been accepted and you have made your buyer deposit, contingencies on the contract will have to be met. In LA, condos are purchased as-is, however, you can still request for repairs to be made.
As per the mortgage process, mortgage lenders in LA typically ask for your employment history and the financial history of the Homeowner’s association before they approve a mortgage for a condo. The condo association would receive a questionnaire from the buyer’s lender.