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Understanding Condos: A Complete Guide for Prospective Buyers

Like a detached single-family home, a condo can be bought and sold by an individual owner. Like a rental apartment, a condo is usually (although not always) an attached unit that shares one or more of its walls, ceiling, or floors with one or more other separate units. It's sort of like an apartment that you can own, like a house.

If you're interested in learning more about condos, read on for the details.


Ownership in shared common areas

There's one more important element of a condo: Unlike a house or a rental apartment, a condo comes with an ownership interest in the shared common areas of the condo project.

These common areas may include walkways, stairways, hallways, lobbies, elevators, parking structures, landscaping, fences and gates, recreational amenities such as swimming pools or tennis courts, and more. Major systems, such as plumbing, electrical wiring, and HVAC equipment, may be owned individually as parts of the condo units or collectively as common areas.

What's included in the common areas and who owns an exclusive interest or a shared interest in each area is spelled out in the condo association's governing documents. "Exclusive" in this context means the area has shared ownership but can be used by only one owner. For example, a building lobby might be a shared common area, while a deck or balcony attached to one unit might be an exclusive common area.


Pros and cons of condo homes

  • More affordable: Condos traditionally have been more affordable than detached homes; however, that price gap may not be as wide as it once was. The size of the gap depends in part on the homes' architectural types, ages, and locations.

  • Decorate as you wish: Like other homeowners, condo owners can decorate their homes however they want as long as they don't violate the condo association's rules or alter the common elements without permission. For example, owners may be able to paint walls, install window coverings, and hang pictures but may not be allowed to remodel doors, windows, decks, patios, or balconies.

  • Rent potential: Some condo associations allow owners to rent their units to tenants; others restrict or prohibit rentals.

  • More benefits: Condos may offer a variety of benefits, such as lower insurance costs, lower property taxes, better physical accessibility, more opportunities for social interactions, fewer maintenance chores, and more convenient amenities.

  • Association dues: Condo owners typically must pay monthly condo association dues and may have to pay additional assessments for building repairs and maintenance. Older condo projects with deferred maintenance and luxury condo projects with expensive common amenities may have higher dues than other condo projects.

lender's review of the documents

How to finance a condo

The mortgage process to finance a condo is very similar to the mortgage process to finance any other type of home.

One important difference is that the condo process includes an extra step. This step is the lender's review of the association's governing documents, budget, and financial status. The primary purpose of this review is to determine whether the association has adequate funding for maintenance and repairs of the common areas.

Well-run condo projects set aside a portion of their owners' monthly dues in a reserve fund for future repairs. A reserve study estimates how much will be needed.

If the funding isn't adequate, homeowners may have to pay a special assessment, which can be levied by the condo association's board.

Home buyers who are shopping for a condo should review the association's financial documents and its reserve study if one has been prepared.

Condo comparisons

Condos are often confused with apartments, houses, and co-ops. These housing types may look alike, but they typically have different ownership structures.

Condo vs. apartment

Apartments are usually collections of multiple rental units that are located within a building that's owned by one owner. These units typically can't be purchased individually, as condos can be.

Condo vs. house

A key difference between a condo and a house (or townhouse) is that with a house, the owner owns the land as well as the structures. With a condo, the association owns the land as a common area or element of the project.

Condo vs. co-op

A co-op is a residential property owned by a collective entity. Instead of buying a unit within the project, as with a condo, the co-op owner purchases a share of a corporation that owns the entire project. Each share includes an exclusive right to occupy a specific unit within the co-op.

Buying a condo can be risky because multiple owners have some say over how the property is governed. Buyers who understand the risks and do their homework before they buy may find this type of housing to be a good option.


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