Condo Vs House: Questions To Ask Yourself
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But the condo project must meet specific requirements for each of these loans to go through – meaning the lender may not take on that liability. Other sites specifically mention to have bylaws modified to allow for an exemption to cap rules if one already exists. I know the 50% owner occupied rule exists for FHA but I was told it doesn’t exist for VA loans anymore. There is a possibility you may get financing through aVA Home Mortgagefor a condo even if it is not on the VA’s approved list. In this circumstance, your lender will need to submit all your paperwork directly to the Department of Veterans Affairs.
You might dream of homeownership for its many benefits — like having a yard to yourself or being able to choose the wall colors. These perks come with added costs, though, in terms of money and responsibility. You don’t have to get approval to sell your house, which an HOA may require if you live in a condo. Not only will a free standing house typically be larger, it will also generally come with yard space that you don’t get with most condos. Unlike a condominium, a house doesn’t come with shared space. You won’t share walls or entryways with other people, and any decks or yards will belong to only you.
You may need a larger down payment
Both new and repeat buyers enjoy more free time not spent on yard maintenance and outdoor projects. And many condominiums are available within major employment centers, making commutes easier. “The biggest difference between a condo and a townhouse when it comes to a lender is that with a condo, you don’t own the land. You are typically buying the space between the walls,” says Tony Trungale, vice president and branch manager of First Choice Loan Service Inc., in Austin, Texas.
This will typically be done by phone so you should look for the Advertisers phone number when you click-through to their website. Lear about your mortgage options, what to consider before buying a condo, and more. These are the sorts of factors that make a condo either warrantable or non-warrantable, and most mortgages require that your condo be warrantable. There are also underwriting guidelines that must be met on attached condos, including a review process. One exception to this rule is detached condominiums, including site condos, which are exempt from this pricing adjustment. While those are the main differences, a townhome is similar to a condo in that there will be shared walls, generally to the left and right of the unit.
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These extra costs can add up over time, which may not be very appealing for some homeowners. When you’re buying a house, the entire building is up for grabs to become yours. But when it comes to condos, the financial and physical health of the entire development will affect the risk level of the loan. Therefore, lenders are going to be analyze more than just your credit score and how much of a down payment you’re offering. To buy a house with a conforming home loan, your application must adhere to the Freddie Mac and Fannie Mae guidelines.
Condos are usually managed by a condominium association, which is responsible for maintaining, repairing, replacing and managing common areas like hallways, garages and recreation facilities. The association also has the power to adopt and enforce guidelines for the members’ use of those common areas and typically requires residents to pay monthly or yearly dues. A condominium, or a “condo” for short, is a typically more affordable and lower-maintenance alternative to a single-family home. Located within communities of other units, condos are privately owned, but owners share common areas. A key selling point of a condo is that the owner generally only has to take care of the interior of their unit, while a property management company handles the rest. A single-family home, on the other hand, is a form of housing where the homeowner owns both the inside of their house and the land it rests on.
FHA vs. conventional loans
Whether or not the extra legwork is worth it depends on your needs and preferences as a homeowner. “Understand the type of loan you are going to pursue so that you’ll know if the project will have to be approved first, such as by the FHA or VA,” advises Phillips. Financing the purchase of a condominium home is somewhat different than the process of buying a single-family home. For one, a condo mortgage usually comes with higher interest rates, and it can also be more difficult to qualify for thanks to additional underwriting. The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories.
The homeowners' association bears responsibility for ensuring that the entire development can continue to function as a viable entity. So a lender will want to make sure that both you and the development itself are on firm financial footing before it will approve a mortgage. You may also find that some lenders will charge higher mortgage rates for condo mortgages made in certain states, particularly Florida and Nevada. While these increases are often fairly small, in some cases they can be nearly half a percent higher than what you'd pay for the same loan in a different state.
In other words, they aren’t worried just about you as a condo owner defaulting on the loan. They are worried that the other condo owners in your building will stop paying their homeowner’s association dues. These monthly fees pay for upkeep to the building, shared amenities, and common areas beyond your unit. If other owners fall behind on the, it’s possible that problems arise with the building that are neglected and never repaired. That makes the value of each unit plummet — kind of like what happened in 2008 during the mortgage meltdown.
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Also, the regular crew will already know the buildings and units. Homeowner association dues can vary widely, depending on the services provided and how costly it is to maintain the overall property. As a rule of thumb, you'll rarely find that they're lower than $100 a month, while $500 and above is not unusual for better properties. You can avoid the higher rate by simply paying the 0.75 percent up front, or by making a down payment of 25 percent of the purchase price or more. However, a down payment that large is out of reach for many condo buyers, particularly if they're first-time homebuyers. The Department of Housing and Urban Development also keeps adatabase of warrantable condos that will be applicable for an FHA loan.
However, you will be required to put down 10 percent if buying a condo in a new development that does not include a warranty of at least 10 years. In addition, some lenders may require that you put at least 20 percent down on a condo as a minimum. That's partly a function of location; condos in Florida and Nevada in particular have larger down payment requirements than in other states. Still, in other areas the down payment on a condo can be as little as 5 percent for those with excellent credit. Before you get your heart set on one particular condo, do you know if it’s classified as warrantable or non-warrantable?
There are other possibilities out there for people unable to obtain a VA Loan for a condo. While the interest rates and terms of a VA Loan are great, there may be better options out there. If you can save up a down payment and if you have great credit, you could meet the requirements to obtain either anFHA Loanor a traditional loan.
That way, if you’re interested in purchasing a condo, you’ll feel more prepared to take on the process. Condo mortgages tend to have higher interest rates than loans for single-family homes by about 0.125% to 0.25%. That’s because Fannie Mae and Freddie Mac view condos as a riskier bet and, to compensate, they charge the lender an extra fee if you’re buying a condo and your loan-to-value ratio is over 75%. Lenders pass this fee on to you by charging slightly higher interest rates.
House benefits
For example, if your HOA fees include utilities like water and services like trash pickup, those are bills you would have paid in a house, too. While this is an extra cost that will be added onto your mortgage, your homeowners' association fees will help you save money in other ways. With an FHA loan, you can make a down payment on a condo as small as 3.5 percent and still pay the same rate you would with a larger down payment. However, the FHA charges an upfront mortgage insurance fee of 1.75 percent of the loan amount that isn't charged on Fannie Mae loans.
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