Mortgage Daily

Published On: December 19, 2022

If you are trying to decide whether to buy a house or condo, there are some things you should consider:

  • When you purchase a condo, you are required to pay your share of costs towards the services, maintaining, and improving common areas. This is usually handled through a homeowner’s association (HOA). Before you purchase, look into the condo’s HOA to make sure it’s not too expensive and that it runs efficiently.
  • Many people like condos because they are appealing. Condos have less upkeep and maintenance and can be less expensive than a house. 
  • One setback with buying a condo is you often cannot borrow as much. This means you will typically need a larger down payment and have a higher mortgage rate.

So, is a house or a condo better? How are they different? What exactly is a condo? Are one of the purchases riskier? Do the two have any distinguishing differences in ongoing ownership costs? Are the mortgages more expensive for one than the other?

This article will give you an answer to these questions and help you decide which purchase is better for you.

What’s the Difference?

When you purchase a single-family house, you own all of it. The pool, roof, fixtures, landscaping, and more- it all belongs to you. You are also solely responsible for the upkeep and maintenance of the home.

This responsibility for the general upkeep is not true for condos. 

What Is a Condominium?

With a condo purchase, you are just buying your unit. This unit can be anything from a tower block to a duplex, or the development of multiple blocks. Aside from your unit, you will also be part owner of common areas, services, and facilities. 

This can include paths and driveways, landscaped areas, lobbies, parking areas, garages, and hallways that give access to units. A common facility can also include a building’s heating or HVAC. Similarly, janitors and doormen can provide a common service. 

Your Obligations

Your obligations are to pay for your cost share of maintaining and improving the common services. The homeowners’ association (HOA) is usually responsible for the oversight of these fees and upkeep. 

You also have to comply with the covenants, conditions, and restrictions (CC&Rs) that your property has. 

What Do You Own?

Before you buy a condo, you should always check your CC&Rs to verify what belongs to you and what is considered common. The CC&Rs will also let you know and restrictions on the use of your property. These restrictions can include rules for pets, noise ordinances, using your home as a workplace, and other nuisances. 

Typically, the roof and exterior walls of the building are considered common. But your ownership of the interior walls that separate your unit from your neighbor, could only be drywall-deep. This is why reading the CC&Rs before you buy is important. 

Condo or House — When Condos Are Better

People prefer condos for three main reasons:

  • Living carefree

Unlike regular residences, when you buy a condo, you don’t have to worry about yard work. You no longer need to clean the gutters or fix the roof. The snow will be shoveled for you. The exterior of the condo is usually taken care of for you. 

This work is not necessarily free, your condo fees will go towards paying for these services. But the fees are lower because everyone in the development is paying a share of expenses. This is cheaper than if you were to pay for all of these expenses on your own. 

This is great for people who hate to do yardwork chores or people who cannot physically do them. 

  • Purchase prices are lower

Purchase prices will vary depending on the development, area, and unit. Condos are usually cheaper than comparable houses, this is especially true in areas with high house values.

You should check online to see if this is true for your target area. 

  • Close by friends

Condos come with many neighbors and can give you a real community feel.

In a condo development, you will tend to live closer to your neighbors. There is also a higher probability of you running into people in common areas and elevators. If you are looking to make friends and have close community living, condos are perfect. 

Downsides to Condos

Like most things in life, condos are not perfect. There can be some downsides, some of which are serious. 

  1. Homeowners’ association funds

If the HOA for a condo has insufficient funds it may have problems fixing sometimes major issues and repairs. If this happens, you may be urgently required to pay a large amount of money to cover your share of the costs. This situation is called a “special assessment.”

A well-managed HOA will build up its funding over time so that any type of expense will be covered pain-free. All HOAs are run differently, with some in better financial shape than others. 

You will need to look into the HOA’s finances before you buy a condo. If you are purchasing a condo with a mortgage, the lender will look into the HOA for you so they can protect their interests. 

  • Paying for things you don’t want

It’s common for some condo developments to come with swimming pools, fitness centers, and clubhouses. These are great perks for people who enjoy these commodities.

If you are someone who does not find an appeal to these, or even if you just don’t use them, you are still responsible for paying for the running of these facilities. 

  • Close neighbors aren’t always fun

Living very close to your neighbors can help you make friendships and create a community spirit. It can also drive you crazy dealing with that many people. 

Because condos usually involve sharing a wall with your neighbor, this could be problematic if you have a noisy neighbor. If you are unlucky enough to end up next door to someone loud or difficult, you are stuck there. 

Condos and Mortgages

If you meet the usual lending requirements, it is not hard to get a mortgage for a condo. However, the deals that you get on a condo may not be as good as if you were buying a house. 

There are two ways that this is important. First, you might end up paying more for your overall loan. Second, when you sell, potential buyers may end up paying more for their loan as well. Some condo prices are lower mainly because not a lot of buyers want to live with poor mortgage deals. 

Here are a few ways that a mortgage for a condo might be problematic. 

  • You won’t be able to borrow as much

Lenders will use your HOA fees as a continuing debt when they calculate your debt-to-income (DTI) ratio. If this ratio ends up being poor, you will be offered a smaller loan amount or a higher mortgage rate. 

Every loan program is different and they all have different flexibilities. 

  • Your down payment will be larger

A condo might not work out for you if you must have a small down payment. 

For example, Freddie Mac’s Home Possible Advantage mortgage does not include condos for 3% down. Condos will have a 5% down payment for its Home Possible mortgage. 

There are loans for condos that the Federal Housing Administration has approved. You can get a loan from them if you want to buy approved. 

  • Your mortgage rate may be higher

It’s common for some mortgages to have “loan-level pricing adjustments” or LLPAs. These are increases on the standard mortgage rate that you might have otherwise received. These are added because of the extra risk involved.  

If you go with Fannie Mae and put down payments below 25%, they will add 0.75% for condos. 

You will likely pay higher interest rates and fees to finance a condo if it is not approved by Fannie Mae, Freddie Mac, or any other government-backed programs. 

Condo or House?

There should be a range of criteria that you use to base your next house purchase on. If you have checked out your mortgage options and think you will enjoy the lifestyle of HOA lifestyle, go for a condo unit.

Even if you buy a house, you can end up with bad neighbors or unexpected repair costs. 

Choose the option that you think will make you happier and your life easier. 

What Are Today’s Mortgage Rates?

Mortgage rates today for both condos and houses have gone up. Currently, Freddie Mac’s weekly average rates have peaked. The good news is that the rates are expected to lower by the end of 2022. To make sure that you are receiving the best mortgage rate, make sure you shop around and compare prices from different lenders. 


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