Updated: November 4, 2024
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Buying a condo is an exciting opportunity. It can be freeing to have a place of your own, and it can open doors to purchasing a single-family home in the future or becoming an investment property.
However, there are some downsides and costs you may have to weigh as well, including Homeowner Association (HOA) fees and rules, condo insurance and a lack of privacy. By doing your due diligence on purchasing a condo, you can decide if it’s the right housing option for you.
Facts About U.S. Condo Ownership
A condo can be a nice home option for a single buyer or a recently married couple. People take advantage of the benefits condos offer, such as maintenance being taken care of, the shared amenities and the opportunity to live in the city.
The average price of a condo in the U.S. is $289,000, which is $45,500 less than the average price of a single-family home at $334,500.
HOA fees average several hundred dollars per month to over $1,000 per month, depending on where you live. Condos in big cities generally charge higher fees.
More than 5 million American households live in condos or co-ops.
Prior to purchasing a condo, you should understand what this type of home offers, including the pros and cons, to determine if condo ownership is for you. Below you’ll find out more about condos versus other types of housing, the associated costs, benefits and drawbacks and who is best suited for condo living.
Condo is short for condominium, and it’s a residential complex where each unit is owned by a different owner. While condo owners can change the interiors of their homes as they desire and are responsible for the maintenance and repairs of their homes and exterior units — like a garage or storage space — the homeowner’s association will take care of everything else in the building and on the property. It’s different from a house or townhouse, where you would be responsible for everything, but you may not have to pay HOA fees depending on the community you’re in.
You can get a mortgage for a condo, house or townhouse. Living in a condo is like living in an apartment, except you don’t have a landlord who is responsible for maintenance and repairs. Depending on where you live and your financial situation, you could end up doling out less money for your monthly mortgage payment versus your monthly rent for your apartment. Here are some more differences and similarities between condos, apartments, houses and townhouses.
Condo | Apartment | Townhouse | House | |
|---|---|---|---|---|
Ownership | You | Landlord | You | You |
Average Cost | $289,000. Cost will vary greatly depending on what city you live in. | $1,660 for a one-bedroom, but will vary depending on the city you live in. | $166,500 for a 1,500 sq.ft. traditional-style townhouse. Size will vary depending on what city you’re in. | $334,500, and will vary depending on what city you’re in. |
Type of Costs and Fees | HOA, mortgage, taxes and insurance. | Any repairs your landlord doesn’t cover. | All repairs and maintenance, mortgage, taxes and insurance. | All repairs and maintenance, mortgage, taxes and insurance. |
Maintenance | In-unit | None | Everything | Everything |
Best For | First-time homebuyers, small families. | Those who can’t afford a mortgage or would rather rent. | Young homebuyers or first-time homebuyers. | Experienced homebuyers or first-time homebuyers. |
How to Find One | Real estate agent, home listing websites such as Zillow and Redfin. | Rental listing websites, Craigslist and Facebook. | Real estate agent, home listing websites such as Zillow and Redfin. | Real estate agent, home listing websites such as Zillow and Redfin. |
Purchasing the space you’ll call home is a big step and determining what type of home would be best for you is a crucial place to start. So, is a condo right for you? Decide if this type of property is ideal for your needs by learning all about the benefits and drawbacks condo ownership brings.
For instance, you may not be aware of expensive HOA fees and restrictions that an association could impose on you. Alternatively, you may be grateful for the HOA, which will take care of the maintenance outside of your property, saving you money every year. You may enjoy community living and being in close contact with neighbors, or you might be worried about living right next to other people. Below are some key pros and cons of condo life to consider.
A condo is typically best for people who are single, couples or small families. It is not well-suited for a big family, unless it’s a temporary situation and the family is planning to use the money earned from the sale of their condo to purchase a townhouse or single-family home. Since many condos are located in large cities, it’s a good idea to purchase one if you like living in urban areas. If you enjoy apartment life, you’ll likely love condo life as well.
Before you begin shopping for a condo, you need to keep a few tips in mind. For example, it’s crucial to find the right realtor with experience in the community in which you’re looking to make your purchase. You should also figure out what amenities your condo will include and all the costs and fees associated with your purchase. Then, you can ensure you’re making the right choice.
Hire a realtor who has sold condos to other clients and is deeply embedded into your community so they can find out when new condos are coming on the market.
You may be able to find information about the condominium complex and the HOA by looking on Google and Yelp. Find reviews from previous and current owners to learn the real scoop.
Find out how much you’re going to pay in HOA fees each month.
What amenities are included in your condo purchase? Some may include having a parking spot, storage unit, pool, tennis court, gym and more.
Find out what rules there are around living in the condo complex. For example, are you limited to one or two pets, can you plant a garden or decorate the front of your condo as you wish?
You can see whether the condo is going up in value or not. Look at news reports about the real estate market in general to determine if this is a smart purchase.
When you’re looking into how to buy a condo, you’ll discover you need to get condo insurance, or HO-6 insurance, too. It’s going to cover what your condo association’s policy will not cover, such as damage to your belongings if there’s a fire or another disaster and if you get sued because someone got injured in your home. Typically, a mortgage lender will require that you purchase condo insurance covering hazardous and natural disasters as long as you have a loan with them. The average cost of condo insurance is $625 per year if you have $60,000 worth of personal liability coverage and a $1,000 deductible.
When shopping for condo insurance, make sure you keep these tips in mind to ensure you’re getting a good deal and you’re covering everything you need.
When you purchase a condo, you’re going to need to get a mortgage if you’re not outright purchasing it with cash. You can get a mortgage for a condo whether it’s your primary residence, a vacation home or an investment property. Typically, you’ll need a larger down payment if it’s not going to be your primary residence. A condo mortgage is different from a regular mortgage, because the lender may evaluate the building’s occupancy, the age of the building, the amenities provided, and the building’s current finances.
There are different types of mortgages you can get for a condo, including conventional, FHA, USDA and VA loans. Here are the options you have when looking for financing.
Conventional loans are traditional fixed-rate or adjustable-rate mortgages that come with monthly payments as well as a loan time period, such as 15 or 30 years. You may be able to procure a conventional loan from a bank. Your eligibility will depend on factors like your credit score and your down payment size.
Federal Housing Administration (FHA) loans are federally-backed loans that have easier credit and lower down payment requirements. The rules are going to be stricter for FHA loans for condos than they will for single-family homes.
Check to see that your building meets the requirements for getting an FHA loan before applying. If you are rejected for an FHA loan, you could work on improving your credit score, saving a higher down payment, and/or applying for a conventional loan instead.
Veterans Administration (VA) loans are for veterans, current members of the military and eligible surviving spouses. Keep in mind that the approval process for a VA loan for a condo can take several months. But once your purchase is approved, you get a lifetime approval.
You can search the Veterans Information Portal to find VA-approved complexes. Then, you will have a better chance of getting approved for your loan.
A U.S. Department of Agriculture (USDA) loan is for people who are looking to purchase a condo in a certain rural area. These are for low-income Americans who have poor credit. The mortgages they can get may require no down payment and might offer low interest. The condo must be your primary residence, and there are income limits. Mortgage insurance will be included.
When applying for a USDA loan, you’ll need to show that you have steady employment and income. You could qualify if you are self-employed.
Before applying for a loan, do your research to see if you’d qualify for one. Look into the requirements for conventional, USDA, FHA and VA loans from the lenders you wish to borrow from. Additionally, you’ll need to get your finances in order, seek out pre-approval, and make sure the condo community you’re purchasing from is financially sound.
Make sure you have money for a down payment in your bank account (if you need a down payment) and check your credit report.
Look into your loan options and see which ones you qualify for and want to apply for.
Talk to lenders to discuss their requirements for getting a loan.
Make sure the condo is warrantable, which means that it follows Fannie Mae and Freddie Mac guidelines (no more than 15% of condos are delinquent on association dues, for example).
Ask the HOA for documents that detail its finances, and research the maintenance company responsible for the property, too.
Get pre-approval for a loan through your lender.
While purchasing a condo could be a great idea for your finances and your family, there are some common mistakes you’ll want to avoid — like not doing your research on the condo association. Avoid these mistakes and you’ll have a much more positive purchasing experience.
Condos can be attractive investment opportunities, or they can end up being a complete waste of money. By looking into investing in condos and doing your thorough research, you can determine if you’re likely to make money off your investment. You’ll want to see how the condo has appreciated over the years and if it’s likely to continue going up in the future.
A condo might be a good investment if it’s in an area where real estate is going up. By investing at the right time, you can earn back the money you invest, and then some, to invest in another property or use it to purchase a primary residence. Below are a few key investment points to keep in mind.
It's in an up-and-coming area
A condo that's in an emerging area is likely to go up in value and you could make a good amount of money on it.
You can't afford a single-family home
A condo is a starting point for investors who don’t yet have the capital to purchase a single-family home.
You could lower your tax bill
Since this is an investment and a business, you could claim deductions on your taxes.
Eventually, you could move in
You can choose whether or not you want to move into a condo after your renter has left to try it out for yourself.
There are, of course, downsides to investing in condos. Before making a purchase, you should research these downsides, including the fact that you can’t get any property when you purchase a condo.
You have no property
With a single-family home, you get property and can do with it what you please. You won't necessarily have the same creative freedoms with a condo.
It may not go up in value
You're taking a risk on investing in a condo because it could very well lose its value over time.
Certain things are out of your control
You can't control whether or not the condo association does the proper maintenance and repairs for the building, or who the neighbors are going to be, for instance.
It could be more difficult to get a loan
Typically, it's easier to get financing for a single-family home as opposed to a condo because there are so many more factors involved.
You may be wondering: are condos a good investment? By learning about investing in condos, you can make sure that your investment is going to be likely to pay off. Here are some tips you can use to decide if investing in a condo is the right decision for you.
With these resources, you can figure out if you would like to make the leap and purchase a condo. Look into each one to help you make your decision.
About Nathan Paulus
Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.
Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.
