Pros And Cons Of Condo Versus Home Purchase
Many home buyers, especially first time home buyers, contemplate whether to purchase a condo or home. Both condos and homes have their own advantages as well as disadvantages. One of the main reasons first time home buyers gravitate towards a condo versus home purchase is due to budget. Many home buyers automatically assume that just because condominium units are generally lower priced than homes, their monthly housing payments is automatically lower. That is absolutely the case and when I qualify a home buyer for a home purchase and the home buyer is very adament on buying a condo versus a home, most of them tell me is due to the price and their goal is to have the lowest possible monthly housing payment.
Case Scenario Where A Lower Price Condo’s Housing Payment Is More Than A Higher Priced Single Family Home Payment
Let’s take a real case scenario where one of my borrowers who got approved for a FHA loan wanted to purchase a condo. She was looking for a FHA approved condo for the longest time but had a very difficult time looking for a condo unit that was FHA approved. She could not qualify for a conventional loan due to a prior bankruptcy so FHA was the only route to take. My borrower is in her 40’s and I asked her why she was so set in purchasing a condo. She told me that her budget was $150,000. I gave her an analysis of what her monthly condo payment would be. If she put 3.5% down payment for a $150,000 purchase priced condo, her loan amount would be $144,750. For simplicity, we will not count upfront mortgage insurance premium and assume that the upfront mortgage insurance premium will be paid with the sellers concession and not added on the loan. The monthly FHA mortgage insurance premium for this condo loan is $162.84 which will added to her principal and interest of $712.08, a 4.25% 30 year fixed rate FHA insured mortgage loan. Her taxes were $3,600 per year which is $300 per month. Her condo homeowner association dues were $425.00 per month. If you add everything up, her monthly housing payment on this condominium purchase will be $1,599.92.
Compare Homeowners Association Fees On Condominium Complex
I asked my borrower why she would not consider single family home and her answer was that $1,700 was her maximum monthly budget for a home purchase and that most homes she liked were priced close to $200,000. I told her lets do a case study and pick a home she liked. She had plenty of money for the down payment and the 3.5% down payment was not her major concern but her monthly housing payment was. On a $200,000 price single family home, her mortgage would be $193,000. 7.25 per month. Her FHA annual mortgage insurance premium will be $2,605.50 which comes out to $21 Her principal and interest payment will be $949.44 with a 4.25% FHA 30 year fixed rate mortgage loan. Lets assume her property taxes are the same as the condominium unit’s property taxes of $3,600 per year which comes out to $300 per month. Let’s assume the homeowners insurance is $1,200 per year which comes out to $100 per month. There is no homeowners association dues since the home is not in a gated community. If you add the proposed single family home payment, it totals $1,566.56 which is slightless less than the purchase of the condominium. Although the mortgage principal and interest and the FHA monthly mortgage insurance premium is more in the single family home calculation, my borrower’s housing payment is slightly lower on a single family home that is $50,000 more money than her condominium purchase due to the single family home not having the added homeowners association fees that is associated with the condominium.
Advantages Of Condominium Ownership
Second home buyers often select to purchase condominiums over single family homes due to the security associated with a condo unit and due to the fact that the condo homeowners association does all the exterior maintenance including the common areas such as hallways, lobby, and exterior. They do not need to worry about a cat burglar in the middle of the night or having their neighbors check on their home every other day. Most condominium units are apartments and consists of multiple units back to back so there is a lot of traffic. If your condo neighbor sees anything out of the ordinary, they will most likely notify police or even you if you have made arrangements and told them times when you are not occupying your condo unit.
Many condominium homeowners association offer ammenties such as indoor/outdoor swimming pools, tennis courts, walking paths, and fitness centers. Those with hectic lives and those who travel alot, a condo versus home puchase offers more advantages. Nothing is free in this world and all of these ammenities come with a price tag: Condos get assessed a condominium homeowners association and some of these condo homeowners association is not cheap.
Disadvantages Of Condo Ownership
Advantages Of Single Family Home Ownership
If you own a single family home, you can do whatever you want without asking for permission. If you want to gut a certain part of your home and convert it to a specialty space, you are free to do so. If you want any kind of pets, you can do so without asking for permission or being told no. There are no monthly association fees and no threat that your association fees with double or triple in the future due to ammenities being added which you will not use. You have privacy as a single family home owner where you do not have a neighbor separating you from a wall.
Disadvantages Of Being A Single Family Home Owner
A single family home owner is responsible of all indoor and outdoor maintenance issues including upkeep of landscaping. Utility bills are often higher due to homes being larger than condominium units. If you have a single family home as a second home and the home is not occupied often, you need to be concerned with security.