What is a condominium? Do you want to know the answer to this question, then keep reading this article.
Purchase a condominium will be more convoluted than buying a single-family house, as you are buying a piece of a community that has a unique set of rules and fees.
Moreover, the condominium mortgage process can be complicated when the lender considers both your finances and the finances of the condominium community.
Stick to this article to have broad information on condominiums.
READ MORE: What Is a Condominium? How Condos Work Compared to Apartments
What Is a Condominium?
Table of Contents
A condominium is a privately owned unit that has a large building that also houses other units. It is also called a condo in the short form.
They are usually managed by the condominium association that will be responsible for repairing, maintaining, and managing common areas like the hallways, garages and recreational facilities.
However, the association has the power to adopt and enforce guidelines for the member’s use of those common areas and typically requires residents to pay dues monthly or yearly.
How Does Condominium Work
Condo owners are often said to own the airspace of the unit in a multi-unit development. It means that the condo owner’s title for the property that do not include the four walls that divide the unit from other units or common areas in the property.
Moreover, the ceiling, sidewalks, floor, stairwells and exterior areas are all part of the common ownership of the condo. The popular kind of condominium is the residential high-rise that gives housing for diverse families.
However, the concept is not limited to high-rise buildings, nor is the concept that is limited to residential properties. Residential townhouses have sometimes developed into condominiums. Commercial properties will be condos like office condominiums.
Condominium vs. Apartment
The major difference between the condos and apartments is not in the structures themselves but in the way, it is being owned.
Moreover, the apartment buildings are often owned by a single entity like the real estate developer or real estate investment trust (REIT) and rented to tenants.
For condo is a single unit of a large building that is usually owned by an individual. Owning the condo also builds equity, when renting an apartment doesn’t. Otherwise, condo communities and apartment complexes give similar amenities.
READ MORE: What is a condo?
Condominium vs. House
Owning a house allows you to do anything you want to do with and in your own house as long as it’s legal. For an instant, you can remodel as you see fit as long as you get the proper permits.
Condominium associations, on the other hand, will limit the kind of remodeling you’re modelling to prevent you from renting out your unit or even restrict the kind of pets you own. Moreover, the condo will have less privacy than the house since you share the building with diverse units.
The condo prices tend to be low than home prices. According to the National Association of Realtors (NAR), the median condo or co-op sales price was “337,300 in March 2023, while the median single-family home was $436,800.
Types of Condominium Mortgage
Various condo mortgages are available.
● Conventional Loans
Conventional loans give financing for condos with 3% down, a minimum 620 credit score and cancelable private mortgage insurance (PMI).
When you don’t have to put 20% down when buying the condo. However, they use guidelines set by government-sponsored entities Fannie Mae and Freddie Mac which means that your condo has to be warrantable.
● FHA Loans
You will need a score of 580 in other to buy a condo and make the program’s minimum 3.5% down payment. Make use of HUD’s condominium search tool that is linked to find FHA-approved condos or look up the specific condo that you are interested in.
● VA Loans
Active-duty military members, veterans and eligible spouses will buy a condo with the VA loan. For Military borrowers, the loan program has a 0% down payment, no mortgage insurance and there are no loan limits which are perks that FHA and conventional loans don’t offer.
● USDA Loans
USDA gives a 0% down payment mortgage to lower-income borrowers in rural areas to purchase a condo. There’s no minimum credit score requirement but will need to meet the USDA income limits and demonstrate that can handle the monthly mortgage payments.
What To Know About Condo Mortgage Rates
Condo mortgages tend to have high interest rates than loans for single-family homes and they’ll likely get even high for their borrowers.
This is because Fannie Mae and Freddie Mac view concise as the riskier bet and to compensate, they charge the lender an extra fee if you’re buying the condo and your loan-to-value (LTV) ratio that is over a certain limit.
In the former rules, your LTV had to exceed 75% to trigger the fee. Moreover, in the year 2023 on May 1st, the cutoff will be 60%. Lenders pass the fee on to you by charging slightly high-interest rates.
Luckily, you can negotiate the mortgage raw with your lender and the large the down payment you’re able to bring to the close table, the less your payment in extra fees or interest rate hikes.
READ MORE: Condominium complex: How is it different from apartments?
Conclusion
The condominium is the individual-owned residential unit in the complex or building of like units. Condo owners own their units but share common amenities, spaces and other resources.
