Buying a condo may seem like the right choice, especially if you are a first-time homebuyer. You don’t have to do any exterior maintenance and the cost is less than that of a home. What’s not to love, right?
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While buying a condo can be a great choice, it isn’t always the right one. Learn the top five mistakes condo buyers make to help your purchase be as successful as possible.
Mistake: Not Knowing if the Condo is Warrantable
If you use a reputable real estate agent to buy a condo, you shouldn’t have to worry about this issue, but you should still be aware of it. A condo must be warrantable, or in other words, sold to Fannie Mae, Freddie Mac, the FHA, VA, or USDA. If a condo isn’t warrantable, it means that it doesn’t pass one or more of the entity’s requirements. If this is the case, you’ll have a very hard time securing any type of financing on the home.
Typically, you can ask the homeowner’s association if the condos in the development are warrantable. If they don’t know, you’ll need to reach out to your real estate agent or even your lender. If a condo isn’t approved by Fannie Mae, Freddie Mac, the FHA, VA, or USDA yet, it could be because everyone has paid cash thus far for the condos. It could also mean, though, that the association failed and none of the typical loan programs will be available for it.
If you find this out too late, you could end up bailing on your purchase contract, which could leave you with financing consequences.
Mistake: Not Knowing the HOA Rules
When you buy a condo, you agree to follow the homeowner association’s rules. Whether you agree or disagree with them, you have to follow them. The rules could govern many things including:
- What you do/have on the outside of your unit
- How you can use the property (can you lease it?)
- You may have parking restrictions, especially overnight
- You may have to pay a special assessment for certain services
- Your association may or may not provide all of your utilities with your HOA fee
Knowing the rules and what’s included can help you make a smart purchase. If you are taking a mortgage payment that puts you right maximum debt ratio or what you can afford (in real life), you need to know how the utilities are handled so that you can make an appropriate decision.
Mistake: Not Asking About the Number of Rented Properties
Condos are more often rented than lived in as an owner-occupied property. While it’s good for you if you are the property owner earning a profit, it’s bad for those that live in the development as their primary residence.
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If you plan to live in the condo as your owner-occupied property, make sure to ask the percentage of units that are rented or owned by a property owner. If the number is high, you may have difficulty getting financing. Even if you can get financing, a high percentage of rented properties can cause you to have trouble selling the condo when you are ready to move. Many condo developments end up being used as condotels (like a motel), making it hard for anyone to want to live in them full-time.
Mistake: Not Focusing on the Location
Many people make the mistake of falling in love with a condo development and rushing into a purchase because they ‘have to have it.’ What they don’t think about is the location and the convenience of it. You’ve probably heard the saying before ‘location, location, location.’ In other words, you should always put the location first. Don’t overlook the importance of this.
Think of things like the commute to work; the schools that your children would go to; and the proximity of the most used shopping centers. If the location isn’t desirable, the excitement of the development can wear off quickly. Suddenly, you could find yourself stuck in a condo that doesn’t do you any good, but because it’s not in a good location, you may have a hard time selling it.
Mistake: Not Knowing the Type of Insurance Coverage the Association Carries
The last thing you want to find out in the face of a disaster is that the association doesn’t have the type of coverage you thought they had. Ask upfront about the coverage and what type of supplemental coverage you may need.
If you don’t know ahead of time, you could either under budget for your insurance needs or find yourself in a financial bind if a disaster occurs. Your association should provide you with all of the insurance documents so that you know ahead of time, but you should know before you sign on the dotted line so that you make the right choice.
Buying a condo can be a great way to start homeownership or even to purchase your second or third home. Before you do, though, make sure you avoid these mistakes. Buying a condo is a little more complicated than buying a single-family home, but with the right help, you can make it a successful purchase.
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