For busy professionals or couples without kids, buying a condo instead of a house might seem like a smart idea. However, condos can carry significant hidden risks -- and if you don't do your research, you might end up paying a hefty price. Read on for some key questions to ask before you commit to a condo or townhouse.
- What fees will I pay? Prospective buyers often do their homework on the cost of the condo but forget to take fees like HOA (homeowners' association) dues into account. Factor these into your financial calculations before signing paperwork -- otherwise, even with a sensible mortgage, you might end up in a home you can't afford [source: Fulmer].
- How are repairs handled? Condo or townhome associations often have insurance policies that cover certain repairs, as well as a reserve fund to fund upkeep of community resources like swimming pools or tennis courts [source: Deacon, Spears, Fedson & Montizambert]. A little research can help determine how much money you should expect to pay out of pocket for repairs and maintenance.
- Who lives here? Buying a condo isn't just about finances; since condo dwellers live in close quarters, a lifestyle match is also key. For example, if you're a late riser but your upstairs neighbor works out in her living room at 5 a.m., even the best-appointed of condos won't make up for all your lost sleep.
- What's the delinquency rate? A building's delinquency rate refers to the percentage of residents who are late paying their homeowner's dues. So why does this matter to you? Most banks will not approve mortgages for buildings with high delinquency rates (usually above 15 percent), which means that even someone with solid finances could be denied [source: da Costa]. Search out this info in advance so you don't waste your time on a dead end. While you're at it, make sure you find out how many of the apartments are rented out. If the rental ratio gets too high, you may not be able to get a home loan from what the bank considers an apartment building.
- What's the homeowner's association like? Just like the neighbors, a HOA or condo board can make or break your living experience. Before you buy, ask to see the HOA's rules and regulations, and request a copy of a recent meeting's minutes. If you don't feel comfortable with the rules or the board's decision-making processes, consider looking elsewhere for your new home.
Need a few more questions answered before taking the leap? Walk through the links on the next page.
Even though it might be tempting to go the ostrich route when faced with a big decision: purchase and bury your head in the sand (as I'll admit I'm wont to do on occasion), it's definitely better to do your research and come into that decision with confidence. One tip I know I'll be using in the future is to look at the HOA's meeting minutes before making my final decision. Checking out the proceedings is a great way to not only see how the board makes decisions, but also to gather some insights on the kinds of issues that arise in the community.
More Great Links
- da Costa, Polyana. "What to know before you buy a condo." Bankrate.com. (July 14, 2012) http://www.bankrate.com/finance/real-estate/know-before-you-buy-condo-1.aspx
- Deacon, Spears, Fedson & Montizambert. "Condominium Reserve Funds." (July 14, 2012) http://www.condolaw.to/pdf/CONDOMINIUM%20RESERVE%20FUND.pdf
- Fulmer, Melinda. "5 Questions to Ask Before Buying a Condo." MSN Real Estate. http://realestate.msn.com/article.aspx?cp-documentid=13107731