Image courtesy of Flickr, Dean Hochman
Buyers in the market for a home often choose between a single family home and a condo. We discuss and compare both property types to make your decision process easier.
According to the seasonally adjusted figures from the NAR (National Association of Realtors), there were 4,730,000 existing home sales and 620,000 condo/co-op sales in the year 2014. Depending on your specific needs and lifestyle expectations, one property type will be better suited for you than the other.
We will review and compare the similarities and differences between owning a single family home and a condominium to help you with your decision making process.
The average (mean) price of existing homes sold in 2014 was $255,300. Price of a homes are primarily based on the square feet of living space. Some adjustments for price are made for such things as views, quality of craftsmanship, neighborhood statistics, and density of population to mention a few.
We find that, under normal conditions, the price of condominiums and single family homes are similar in their price per square foot.
Lender closing costs commonly include an origination fee and an administration and/or underwriting fee. You should expect to pay approximately $3,150 in lender fees for a $250,000 loan amount (considering 1% origination and $625 admin fees).
Whether you are buying a single family home or a condominium, it is uncommon for closing costs to differ based on the property type.
The majority of mortgage lenders will follow qualification and pricing standards set by Fannie Mae, which purchases loans originated by lenders.
Essentially, Fannie Mae charges lenders a 75 basis point (0.75% of the loan amount) add-on fee to purchase a loan made for a condominium. To compensate for this, the lender will offer a higher interest rate (approximately 0.25%) to the borrower.
Property Taxes are determined by the Tax Assessor, based on the value of your property. Depending on what county your home is in and what bond assessments have been passed, your tax rate can be summed up to a percentage of the value of your property.
As a condo owner, you own a portion of the entire building. When you want to do any structural changes to the property or major cosmetic changes such as floors or windows, you must check with your HOA to make sure you are in compliance with the CC&R's (Covenants, Conditions and Restrictions).
If you buy a condo unit on the second floor, the CC&R's of the HOA may not allow you do put in hardwood floors so the resident living below your unit will not be disturbed by footsteps.
As a single family home owner, you are free to make structural or cosmetic changes to your property as you wish, with consideration to city planning and zoning laws.
HOA (Home Owners Association) fees are an expense condominium owners must pay for. HOA fees are used to upkeep and maintain the building. You should expect to pay anywhere from $200 to $400 towards the HOA. However, the more amenities and upscale a building is, the higher the HOA fees will be in excess of $400 per month.
Some things HOA payments cover are:
Many of the items listed are expenses a typical single family home owner will have as well. Before you pass up on buying a condo for the HOA fees, be sure to get estimates on the same services for a single family home to help you compare and make a better decision on which property type is right for you.
Tip: Residents of the building can join a board to oversee the account that holds the HOA funds and make collective decisions about how to use the money, such as in making major repairs. Tell your real estate agent to request a copy of the HOA CC&R's and the HOA financials in order to see how the money is being managed and if the HOA has sufficient reserves to pay for major repairs. If reserves are too low, the residents will have to pay for additional special assessments in order to make necessary repairs.
A major benefit of owning real estate is that you can take advantage from a rise in the value of your property. As you make monthly principal payments, your equity grows fractionally as a result. Your equity will also grow based on the rise in property values in your neighborhood and city.
You can access your home equity in a few ways:
We find that the equity growth potential for a single family home and a condominium are the same.
Tip: You shouldn't access your equity unless you have an important need for it, or unless you have a use for it that would serve a purpose better than it would staying where it is. Many borrowers tap into a large portion of their equity only to find difficulties maintaining payments in the future. Other borrowers take out such a large portion of their equity that when property values are reversed (Great Recession 2007-2009), they are left with an "upside down property" (when property debt is larger than property value).
Condominium owners enjoy the ability to share the cost and use of amenities, such as a swimming pool, a recreation room or onsite gym. They prefer to have someone else upkeep the landscaping and take care of the maintenance in an around the building.
Single family home owners prefer the independence that comes with owning the land and building by themselves. They choose what amenities to pay for, and which upkeep and maintenance costs they will pay for. Single family home owners tend to be more "hand on" in many aspects of the property, whereas condominium owners prefer to be more "hands off."
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