Buying a condominium can be a great option, but the monthly expenses aren’t structured exactly the same way as they are with a traditional single-family home.
Two of the biggest differences are homeowners insurance and HOA fees.
Condo Insurance Is Different
With a traditional home, the homeowner generally carries an insurance policy covering the house and property.
With a condo, the condominium association typically maintains a master insurance policy covering certain portions of the building and common areas.
The buyer will generally need their own condo insurance policy, often called an HO-6 policy, to provide the individual coverage required for their unit.
Exactly what the buyer’s policy needs to cover depends partly on what is already covered by the association’s master policy.
Don’t Forget the HOA Fee
Most condos have a monthly Homeowners Association (HOA) fee.
Depending on the community, those dues may help pay for things such as:
- Exterior maintenance
- Landscaping
- Snow removal
- Common areas
- Community amenities
- The association’s master insurance policy
- Other shared expenses
What the HOA covers varies from one condominium community to another.
HOA Fees Count Toward Your Mortgage Qualification
This is something condo buyers sometimes overlook.
Even though the HOA payment isn’t part of your mortgage loan, the monthly HOA dues are included when determining your total housing expense for mortgage qualification.
For example, your monthly housing expense may include:
Principal & Interest + Property Taxes + Condo Insurance + HOA Dues
That means a condo with a lower purchase price isn’t automatically going to have a lower total monthly housing expense.
Watch for Special Assessments
Condo associations can also have special assessments for major repairs or expenses that aren’t covered by the association’s normal budget.
Before purchasing a condo, it’s important to understand whether there are any current or upcoming assessments and what financial responsibility you would be taking on as the new owner.
The Condo Project Matters Too
With condominium financing, qualifying the buyer is only part of the process.
Depending on the loan program and type of condo, the condominium project itself may also need to meet certain lending requirements.
The lender may need information from the association regarding items such as insurance coverage, project finances, ownership, assessments and the overall condition of the development.
Thinking About Buying a Condo?
Don’t look only at the purchase price.
Before making an offer, let’s look at the mortgage payment, property taxes, insurance, HOA dues and any other applicable expenses so you have a better idea of what the condo will actually cost each month.
A little homework upfront can prevent some big surprises later.