How to Decide Between a House and a Condominium
Choosing between condo vs house properties can be difficult. Many first-time homebuyers gravitate towards condominiums due to their generally lower price and few maintenance needs. In fact, when comparing the process of buying a condo vs a house, condominiums are usually seen as the simpler purchase. However, this is not always the case. The process to finance a condo is often more difficult than financing a home, and involves more requirements.
The difference between condo and house listings does not end there. Homebuyers need to consider a wide variety of factors when selecting the right property for their needs. Aside from price and financing, condos are generally smaller and offer less privacy than standalone houses. Due to the difference in square footage, location and amenities between the two types of properties can vary drastically between these options as well. Homebuyers must compare these features and more in order to choose the most fitting home.
Buying a Condo vs. a House
Before you can compare the differences between a condo or house, you must first understand what a condominium is. Essentially, a condo is an individual unit in a multi-family building, similar to an apartment. However, the unit is maintained by a private owner, much like a single-family home. But unlike detached houses, condo ownership does not include areas outside of the unit itself, such as a yard.
Single family vs multi family properties differ in many other ways. For example, condo units are generally the cheaper option. Less square footage often means lower prices and property taxes. Due to the smaller space and insulation from surrounding units, condominiums also tend to have lower utility costs than houses. In addition to price, houses and condos also differ in:
- The mortgage process.
- Available mortgage options.
Each of these differences between condos and houses can have further effects on the price. Certain locations, amenities and maintenance factors can appear in the form for homeowners’ association fees (HOA). With this in mind, it is important to fully consider each of these factors before choosing one property type over the other. To find out more about the benefits of houses and condos, download our comprehensive guide.
What to Know When Buying a House
Before you decide to take the steps to buy a house instead of a condo, you must consider location and space. For example, you are more likely to find houses in quiet suburban areas outside of the city center. In these areas, local amenities like grocery stores and entertainment are more spread out, which may require a personal vehicle. This more spacious layout allows single-family homes to offer a lot more space than other types of housing. As a result, you will likely experience more privacy than condo living provides. In addition to larger rooms in general, houses often have space for amenities like:
- Yards and gardens.
- Private pools.
Keep in mind that the requirements to buy a house usually include assuming responsibility over maintenance and upkeep. While you have control over painting and decorating the exterior as you wish, this also means you must pay attention to curb appeal. The external appearance of the residence has an effect on the property value, so the outdoor areas must be maintained at all times. Doing through research on the property and on homeownership in general can help you avoid common mistakes when buying a house.
What to Look for When Buying a Condo
Condo living has a lot of potential benefits for homebuyers. For example, these properties are often centrally located in metropolitan areas. But when thinking about reasons not to buy a condo, it is important to keep aspects like privacy and space in mind. Since condos are generally smaller, they offer more communal amenities than many single-family homes. This could mean access to areas like pools, on-site gyms and shared laundry services. Because of these shared spaces, the HOA takes care of many upkeep responsibilities for you, such as:
- Exterior painting.
- Maintenance of communal areas like the laundry facilities, gym and pool.
However, since the HOA is responsible for these tasks, this also means you have less opportunities to customize the space. Most renovations have to undergo prior approval and often include restrictions. In addition, condo fees are usually included in your housing expenses in order to pay for access to all of these amenities and services. These fees can fluctuate as the community undertakes property improvement projects.
Steps to Buying a House vs a Condo
Beyond the physical aspects of condos and houses, these properties also require a different approach to financing. In fact, the requirements to buy a house are often simpler than those involved in purchasing a condo. Before a lender will issue a mortgage loan for any type of home, the property must first undergo an appraisal. Appraisals are used to examine the condition and estimate the true value of the property. For a single-family home, this usually includes the home itself as well as the surrounding yard.
Conversely, the steps to buying a condo involve a much more in-depth appraisal. In addition to the unit itself, lenders also have to consider the following when estimating the value of a condo:
- The condo association’s legal agreement
- The percentage of units in foreclosure
- The ratio of vacancies and rentals to owner-occupied units
Each of these factors can have a significant effect on a condo’s value. As a result, this type of property is seen as more of a risk to lenders..
Condo Loans vs House Loans
Since condo financing is often considered more of a risk, there are also limitations on the loans these properties are eligible for. Most homebuyers get to choose between conventional loans and government-funded loans. For instance, entities like the Federal Housing Administration (FHA) provide loans at much more affordable rates than other mortgage programs. However, applicants and their chosen properties must meet specific qualifications.
Unfortunately, FHA approved condos are hard to find. Due to the higher level of risk, the FHA sets stricter qualifications for condo mortgages. You must take this into consideration while looking at condo properties if you hope to get a mortgage through the FHA or another government entity. You can download this informative guide to learn more about FHA loan requirements for condos.
What is Fannie Mae?
The Federal National Mortgage Association (Fannie Mae) provides affordable housing finance options for homebuyers and renters. Fannie Mae does not provide original mortgages. Rather, the organization purchases existing mortgages and guarantees them with government sponsorship. Fannie Mae mortgages have a fixed rate and can have a lifespan as long as 30 years.
Who is eligible for Fannie Mae?
Fannie Mae guarantees multi-family and single-family mortgages and loans. To qualify for either type of loan, an applicant must have an income lower than the local average, and the property he or she wants to buy must be worth less than the federal maximum. Further, applicants must have a credit score above 620. However, the minimum required credit score may change depending on how many properties the applicant plans to purchase.