Condos are a great form of real estate to purchase. Condos gives you the benefits of owning a home without the cons that come with a single family home. However, not many people understand all of the steps involved when it comes to how to buy a condo.
When it comes to buying a condo, you need to be aware of the technicalities that come along with it. So, below we explain in detail what you need to understand before buying a condo and how you can ensure that you are getting the best deal.
What Is A Condo?
A condominium, also known as condo is an individual unit within a multiple unit property. Each of the residents in this property owns a unit or “condo”, and they pay homeowner’s association (HOA) fees for the maintenance of shared spaces or common areas within the building. These common areas can include parks, pools, gyms, playgrounds, tennis courts, pet areas, and other public spaces.
Condos are popular because they require less in terms of maintenance and are much more affordable. Owners pay monthly or quarterly fees to a homeowner’s association, who reserves the money to maintain the shared spaces such as the landscaping, common areas (pool, gym), and shared structures (for example, the roof).
Some of the perks of living in a condo include:
- Less maintenance, as you don’t need to worry about activities such as maintaining the yard, cleaning the pool, or repairing the roof.
- You get to enjoy a condo community lifestyle, as you are close to your neighbors and will often bump into them in the common areas.
- Condos tend to be close to entertainment and business districts. Therefore, you can easily get to work and access other amenities.
- They are more affordable than family units
However, there are some important things to take into consideration when looking to buy a condo, such as, HOA fees. Make sure to do your research and ask around before buying a condo.
How To Buy A Condo In 10 Easy To Follow Steps
1. Get Your Financing Organized
It is important to get your financing organized prior to shopping around for condos because when you start looking for a condo, it won’t be long until you end up falling in love with one that you want to buy.
It is essential to understand that a condo mortgage is different from a single family home loan. This is because condo’s are seen as a slightly riskier than single family homes because condos are shared with other owners.
Sometimes, condos are purchased with cash due to the stricter regulations of the lenders. When it comes to the FHA (Federal Housing Association), the condo that you would like to buy must meet their requirements.
The requirements for a condo may include; when you buy a unit you are required to live in it, the property needs to be insured and the condo association needs to maintain at least 10% of the HOA budget in cash reserves. Another factor could be that no more than 35% of the property can be used for commercial use.
Normally, FHA also requires 80% of the units in the building to be occupied. You can read more on FHA condos approved here.
In order to get pre-approved for a loan, you will need to present your assets, debts, income and financial information that your lender may request. Some of the documentation that you will need includes: income and employment records, tax returns, bank statements, rent payments and records of monthly debt payments.
Once you are pre-approved for a loan, you now understand how much you will be able to spend when you go to purchase a condo.
2. Start Searching For A Condo And Work With A Real Estate Agent
Searching for the right condo and going through the process of buying a condo can be stressful, especially if you are a first-time buyer. That’s why it’s better to work with a real estate agent who has experience selling condos.
At this stage, you know how much you can spend. An agent won’t just help you find the right fit but utilizing an agent also enables you to negotiate the price, work through the paperwork, and submit an offer. Plus, it is incredibly beneficial to have an advocate who is thoroughly aware of the buying process.
Tip: When searching for an agent, make sure you do some research about them. You could ask for references or whether they have a licensing certificate. You can also look at the agent’s past client testimonials and the areas that they are known for covering.
Once you get the right agent, take the time to tell them what you require from a condo. Talk about the type of community that you are looking for, the amenities that interest you, and how much you can afford in terms of HOA fees.
Make a list of five things that you want and share them with your agent. You can also work with your agent to find a condo with condo association rules that you can accommodate, as some condos have very stringent rules.
When you work with a real estate agent, the process is much more manageable, considering the agent is an expert. They can also provide you with tips to save you money throughout the process.
3. Understand What The Association Fees Are
In most condo communities, you are expected to pay HOA fees either monthly, quarterly, bi-annual or annually. The fees are used to cover expenses like maintenance and insurance. A well managed condo will gladly share their financial statements with a potential buyer.
You can ask them how the fee is allocated, for example, what percentage goes to maintenance and what amount goes to insurance. You should also note that in most communities, part of this fee will be contributed towards a reserve of funds for when capital repairs, or major repairs are required. For example, a roof replacement or lift upgrade.
HOA fees can help you figure out whether you can afford to buy the condo or not. When approving a buyer, the lender will add the associated fee to the buyer’s monthly debts. Even when you buy a condo with an HOA fee that you can afford, it is important to know what the fee covers. In most instances, it includes maintenance and insurance.
4. Complete The Necessary Condo Inspections
It’s crucial to complete a thorough home inspection when purchasing a condo. Check that there aren’t any cracked walls or cracks in the ceiling, make sure the smoke alarms are functioning properly, look for any warped walls or sloping floors, which could be a sign of water damage.
Also, check doors and windows for any signs of damage, ensure the electrical systems are functioning properly and make sure there isn’t any mold.
You can also talk to the neighbors in the building for feedback about the community and the building itself. This will help you get an idea of whether the property is in good condition and well maintained.
It’s advisable to get an impartial home inspector to conduct a more thorough inspection as well. Since they are professionals, they can critically look at the property and give you a report that will let you know if anything needs repair or replacement.
You can use this report to negotiate with the seller, as to whether the repairs are included in the total cost. You could request some cash-back credit to help with the repairs. However, it is important to note that if the repairs are major, you should consider looking for another condo.
5. Research The Maintenance & Management Company
This is an extra step that can help you figure out if the condo is well maintained. You can research the maintenance and management company to see if they have a positive review. Most condo communities have a management company that’s in charge of the everyday operations within the condominium complex.
This includes enforcing the HOA rules and regulations, upkeep of the maintenance and handling any queries from residents. When buying a condo, you are encouraged to forward any questions that you may have to them to look after. If you discover that the management company is unresponsive or has a bad reputation, you may want to reconsider buying the condo.
6. Make An Offer And Be Willing To Negotiate
Negotiation is part of the property buying process. In fact, some sellers set the price a bit higher because they know the buyer will negotiate the price down. Therefore, you should prepare to negotiate for the condo.
One way that you can prepare is by researching the average price of a property in that area. Find out how long the property has been on the market for and determine whether the seller is looking to make a quick sell. This information will help you during the negotiation process.
One strategy you can use is to calculate the price based on similar homes and present an offer that’s 4 to 7% below the asking price. So, if the asking price is $270,000, you can start the negotiations somewhere between $259,000 to $251,100.
If the seller rejects your offer, you can make a counter-offer. If they still refuse, you can negotiate with them to reduce other fees such as the processing fees or closing costs.
One of the perks of working with an agent is that they can help you with the negotiation process. The agent can help you draft an official letter that outlines all the negotiated details, including the terms of the official agreement, earnest money, closing dates and any other items that you agreed on.
Both parties have to sign and date the offer agreement for it to become official.
7. Apply for a Condo Loan
After you have agreed on the price you will pay for the condo, you can now apply for the loan that we mentioned earlier.
You can get the FHA loan if you as the borrower you are approved and the condo also meets the conditions required. The benefits of this loan are that the credit requirements are more relaxed, and the down payment is lower than other mortgages.
If the condo is not in the FHA list, you can choose to go for a ‘conventional mortgage,’ which is secured by a private lender. However, this loan favors people with good credit scores and established credit.
At this stage, your loan officer will provide you with a list of documents that you need to buy the condo, such as the condo insurance.
8. Understand The Required Condo Down Payment
How much you put down on a condo depends on the type of loan. If it’s a conventional loan, the down payment can be 20 to 25% of the total price of the condo (along with a good credit score). A non-conventional government loan will only require a 3 to 15% down payment.
Lenders will look at your credit score before they approve the loan. Most of them will offer the lowest interest to those with an excellent credit score (780+above). If your credit score is below 580-600, you will be asked to put down a larger down payment.
9. Meet The HOA Board
As previously mentioned, every condo has HOA fees where each condo owner pays a monthly fee that’s allocated to the maintenance of the shared spaces. The HOA fees get rid of the burden of maintenance.
However, the HOA comes with rules that some residents may find restrictive. For instance, there may be noise restrictions in the shared area or the size of dogs allowed in the premises. After you find the ideal condo, you’ll need to be approved by the HOA.
To apply, you’ll need to submit your application together with your full financial statement that includes your debts, assets, income and expenses. Most homebuyers include a cover letter showing personal and professional references.
When you meet the HOA board, you can ask about special assessments. These are extra charges that the condo association imposes to fund significant projects. This assessment is usually imposed by the HOA board and not all the residents in the community. Although the assessments occur for a limited amount of time, it is best to learn about them as they can affect your monthly budget.
A well-run association usually avoids special assessments except in extraordinary cases. You can learn more by requesting for the HOA’s financial reports. Make sure your lawyer or accountant reviews them and confirms that the community’s finances are sound.
10. Sign the Necessary Documents
Congratulations! You have made it to the final step. As soon as the parties agree on the terms of the contract, the real estate attorney will draft the final document for the parties to sign.
At this stage, the buyer needs to put the final documents together before signing. If you’re familiar with escrow, then it means that you have deposited the funds for the property in an escrow account, including the closing costs.
Once you’ve signed the necessary documents and deposited all the funds, you will be informed of the closing date. The closing date is the official date when the ownership of the property is passed from the seller to the buyer. This date is usually weeks after the offer is accepted. You can expect the following:
- You’ll submit a condo insurance document to the lender
- You’ll review and sign the loan documents
- A certified check or wire transfer for the down payment will be transferred from the buyer to the seller.
- You’ll sign a closing disclosure (a document with the closing costs that include your escrow fees, title insurance, condo association fees, filing fees and more).
The Bottom Line
With the information we’ve shared here, you can protect yourself and avoid the stress that comes with the process of buying a condo. When deciding to buy real estate, always make sure to shop around for the best condo price as well as insurance to protect you and your property.
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