Buying a condo is often a more affordable option for those looking to purchase real estate but are unable to afford a single family home. In addition, condos often offer conveniences such as swimming pools and gyms that you might not be able to consider if you owned your own home. However, there are many important things to look into when considering the purchase of a condo.
Before you begin your search to find condos you might be interested in, make sure that condo living is right for you. Keep in mind that although there may be conveniences to enjoy, there may also be restrictions to be mindful of. For example, often times there are strict rules regarding the kind of pets that are allowed, i.e. certain breeds or sizes of dogs might be restricted. You may also have to adhere to “quiet hours” and various rules (or restrictions) on decorating.
For many, having the option to purchase instead of rent is worth the above restrictions. If this is the case, review and understand the below to make sure you are investing wisely.
A condo association runs a condo, which is a unit that you purchase which resides within a space shared by all condo owners.
When purchasing a condo, you are essentially entering a business agreement with all of the other owners in your building or complex. You are relying on your neighbors to adhere to the condo association’s rules and regulations in order to maintain facilities, help with the upkeep of the complex and keep peace amongst neighbors.
Be sure to investigate how the condo association is run. Is the association financially stable? It is each owner’s responsibility to pay an association fee each month. The fees collected are used for repairs and maintenance of communal areas. If owners are not paying fees and the association is short on cash, you will find that simple repairs may go by the wayside, or the pool that you enjoyed with your children may not open next season. Also, ask if there is a reserve fund and how the association handles emergency repairs.
The financial aspect is also important since it may be more difficult to be approved to purchase the condo if the association has not been able to collect dues for its owners. Fanny Mae and FHA have strict guidelines on financing and if the percentage of uncollected dues is higher than 15 percent, financing will likely be denied.
In terms of being approved for financing, you also need to determine how many of the owners are absentee owners. For example, if the number of absentee owners, or investors, in any particular association is higher than 49 percent, FHA will not approve funding.
Insurance coverage is another important topic to inquire about. Your condo insurance will cover the unit you purchase (not the building) and the Master Insurance Plan, which is held by the association, covers common areas. Request to review the Master Insurance Plan. Many associations will reduce insurance coverage in order to lower expenses. If there is damage to the common areas, which is supposed to be covered by the Master policy, you might find the association coming after the owners to pay special assessment fees, in addition to association fees, to cover the cost of repairs.