Many of the important differences between buying a condominium and buying a single-family home are obvious: living space, neighborhood type, yard, maintenance, convenience, amenities, security, utilities, and transportation.
However, there are some lesser-known, and often overlooked, differences that should also be considered when deciding between a condo and a single-family home.
Community associations. There are similarities between typical condo associations and the homeowners’ associations (HOAs) found in single-family neighborhoods. Both are created by the developer, are governed by a board elected by the property owners, and assess membership fees to all members. And joining your condo association or HOA is mandatory if you purchase in the community.
In addition, both homeowners’ associations and condo associations are typically responsible for maintaining, repairing, and replacing common areas, which may include the parking lots, sidewalks, green spaces, playgrounds, swimming pools, and other recreation facilities.
While homeowners’ associations in single-family home communities must approve any exterior additions, alterations, or improvements to a home, condo associations have much more power. They can dictate whether you can buy the condo in the first place, to whom you can sell it, how you can market it, whether you can lease it (and for how long), what you can do to improve the unit’s interior, and what you must do to maintain it. A condo association can also regulate pets, outdoor furniture, and parking spaces.
Additionally, the condo association is responsible for the maintenance, management, and insurance on all the common elements of the building itself, as well as hiring staff and contractors to do repairs and maintenance.
Mortgages. The economic and credit crises of the mid- to late-2000s have led to tighter restrictions on all mortgage lending, but condos in particular are viewed as risky by the lending industry because some of their biggest losses came from defaults on condominium loans. In fact, some lenders make a point of rejecting condo loans altogether. Interest rates are generally higher and approval rates lower.
When you apply for a mortgage, lenders look not only at your financial situation but also at the financial condition of the condo association or HOA. When buying or selling your home, you could face delays or even a canceled sale if the association has problems.
FHA financing. FHA loans, or loans secured by the Federal Housing Administration (FHA), are popular with first-time buyers because of a low down payment requirement of 3.5 percent of the home’s purchase price. In order to qualify for an FHA loan to purchase a condo, more than half of the condominium units must be owner-occupied, no single investor can own more than 10 percent of the units, and no more than 15 percent of owners can be delinquent on monthly dues.
Condos that meet FHA requirements are on a public list. Sellers can also check with the condo management company to ask if the community has FHA approval, which can be a big selling point for buyers.
Insurance. When it comes to insuring a home, condo dwellers have the advantage. They are responsible only for what’s inside the drywall of their unit—such as the furniture, the kitchen and bath fixtures, and the flooring—and not the common areas, structure, or exterior, which are all covered by the condo association’s master policy. Single-family homeowners, of course, are responsible for their entire home and their land.
Taxes. There’s little difference between the property taxes assessed to a condo or a single-family home. For tax purposes, condos are viewed as separate units, even though many share the same building. Value is assessed in the same manner as single-family homes, and rates are the same. Fees paid to either condo or homeowners’ associations are not tax deductible. With both types of housing, mortgage interest and property taxes can be deducted on federal income tax returns by taxpayers who itemize.
Steve Cook is executive vice president of Reecon Advisors and covers government and industry news for the Reecon Advisory Report. He is a member of the National Press Club, the Public Relations Society of America, and the National Association of Real Estate Editors, where he served as second vice president. Twice he has been named one of the 100 most influential people in real estate. In addition to serving as managing editor of the Report, Cook provides public relations consulting services to real estate companies, financial services companies, and trade associations, including some of the leading companies in online residential real estate.