Understanding the Mortgage Rates Associated with Buying a Condo

Buying a condominium is often the choice of people who value convenience. Getting this convenience means you may face additional challenges when it comes to qualifying for a mortgage.

What is a condominium?

Condominiums are individual units within a community living complex. They often look like apartments, but instead of renting, you own your private condominium. The resort’s common areas, such as the pools, lounges, tennis and basketball courts, are collectively owned by all resort residents through a Homeowners Association (HOA).

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Condominiums are often popular in cities where land values ​​are high. They’re a great option for potential buyers who can’t afford a single-family home and for people looking to downsize later in life. Condominium complexes also offer amenities that may be difficult for an individual to afford on their own, such as swimming pools and regular maintenance.

Understanding Condominium Mortgage Rates

Mortgage interest rates for condominiums are generally higher than what the same individual would pay if buying a single family home with similar terms. Lenders view these mortgages as riskier than traditional single-family home mortgages.

Conventional mortgages

Most conventional mortgages will have a higher interest rate than a homebuyer would pay for a single family home because they are simply considered higher risk loans to take out.

FHA Loans

Prospective buyers seeking a Federal Housing Administration loan can put down a condominium down payment for as little as 3.5% and still pay the same rate as they would with a larger down payment. Unlike conventional loans, FHA loans charge an upfront mortgage insurance fee of 1.75% of the total loan amount. Some lenders may charge higher mortgage rates for condominiums, but the increases are usually small.

Association fees

When considering buying a condominium, be sure to consider the HOA fees associated with the purchase. All condominiums have HOAs. These associations are responsible for repairs and maintenance of the exteriors, grounds and common areas of the building. HOAs receive funding through dues paid by condominium owners each month in addition to their mortgage.

HOA dues can vary widely and depend on the amount of services they provide. Condominium owners will rarely find HOA dues less than $100 per month and should expect upwards of $500 per month for high-end properties. You may think of HOA fees as an additional tax for living in a condominium, but they can help you save money in a variety of ways. Since the association takes care of the maintenance of the grounds and exterior repairs, the co-owners do not have to worry about unforeseen expenses such as repairing a roof or the purchase and use of a Lawn mower. When looking at condominium complexes, beware of low HOA fees. This may be a sign that the resort is not charging enough to properly maintain the area, which will cause your condo to lose value over time.

Advantages and disadvantages

Condominiums may tend to appreciate at a slower rate than traditional single-family homes. With lower appreciation rates, this means condominiums can be more affordable than other housing options in the same area. Being the owner of a condominium allows you to benefit from tax deductions specific to the fact of being an owner.

When considering resorts, you’ll want to make sure the association has its affairs in order and that you understand its expectations. Many resorts have rules like quiet hours or no dogs of certain breeds. Others may dictate the length of your grass or the number of cars you can have in your driveway. HOA condos all apply different sets of guidelines and rules, so it’s up to you to do your research and make the best choice for your living situation.

Researching the ins and outs of buying a condominium will give you more confidence in your decision. Talk to a mortgage broker to find the best deal for your situation. Speak with condo associations and residents of the property. It’s best to find out about the issues before you buy and move in. You want to make sure you are buying the best property possible. Condominiums are no better or worse than other types of housing, but you need to make sure that this specific property is right for you.

Author: Deb Klein is Branch Manager at Reliability in Loans-PRMI Chandler and helping people realize their dream of home ownership since 2004. She specializes in the purchase and refinancing of primary and secondary residences (vacation or investment). Deb and her team have the expertise to streamline the loan process for a quick and efficient turnaround. She has been recognized by Phoenix Magazine as a Five Star Mortgage Professional for the past two years.

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