If you’re wondering when to buy a condo or townhome, the time is now. Market prices are lower than ever, and buying a condo gives you the perks of apartment life, but the financial stability of home-owning. Like renting an apartment, you are not personally responsible for maintenance of the facilities, and there are usually extra accommodations such as a pool (that you don’t have to clean) or a fitness center. Meanwhile, like owning a home, the monthly payments you make on your mortgage adds equity to condo and townhomes, and you’ll see that money again when you sell. In fact, with a little luck and some research on where and when to buy a condo, you can land yourself a investment that grows in value while you live in it.
Like every single concept in the entire planet, knowing how and when to buy a condo is a delicate subject. To help you out, we’ve put together a few tips for how, where and when to buy a condo or townhome.
A Guide to Buying Townhomes and Condos
- Look for Fannie Mae-approved condos and townhomes for sale.
Fannie Mae is a mortgage lender that is regulated by the government, and tends to offer the lowest interest rate on mortgages. There are specific guidelines for getting a loan on condos and townhouses through Fannie Mae. You can find a list of Fannie Mae-approved condo and townhome developments on their website, but the general guidelines for Fannie Mae condo loans include:
- More than 75% of the building’s square footage is dedicated to residential space.
- A minimum of 10% of the homeowners association (HOA) fees is reserved for stability of the development.
- At least 85% of the homeowners fees are collected on-time.
- At least 51% of the residential spaces are owned rather than rented.
- The property abides with safety and zoning guidelines, and is properly insured.
- Not more than 10% of the units are owned by a single entity.
Knowing these Fannie Mae requirement will help you narrow down your search for a condo or townhouse.
- Research financing options.
On average, financing for a condo has a .125% higher interest rate than a traditional home. Because of this, it is in your best interest to research several options before making a borrowing decision. According to the Consumer Financial Protection bureau, nearly 50% of all home buyers only inquire with the single lender before applying for a mortgage. Going with the first rate you are offered leaves you with a mortgage that could cost literally thousands of dollars more over the course of your mortgage.
It’s a good idea to get pre-approved with a minimum of three lenders, so that you can find the greatest rate available. If you are worried about the impact on your credit score of several lenders inquiring to your credit report, just submit all of the applications within a 30 day span, so that it only counts as one inquiry and does not hurt your credit score.
- Inquire about the financial reserve policy of the condo development.
While researching condo developments to live in, you should inquire how much of the HOA fees are put in reserves. Since the maintenance and repairs to the structure are split between the owners of the condo development, having a large amount of your HOA fees set aside for any unexpected repairs will give you reassurance that should something huge arise (like the need for a new roof), you would not be stuck footing the bill.
- Consider the operations of the homeowners association.
The involvement that the homeowners association has in the condo development varies from one area to the next. At a minimum, the HOA is responsible for general maintenance issues. A good way to get a gauge of how efficient it is, is to review minutes from HOA meetings. When a maintenance repair arises, you should see the initial note of it, and then another note when the issue has been resolved. This shows you that the association has an efficient process for their main maintenance responsibility. If you find the same issue coming up again and again, this is a sign Of an inefficient HOA process.
Do you have any tips for buying a condo or townhome? Please share them in the comment section below.