It has long been assumed that buying a condominium would never gain as much equity as a home.

But new data from the realty marketing company Trulia says differently. In the 100 largest metro areas in the U.S. from 2012 to 2017, median condo values rose by 38.4%. Median single-family detached houses gained only 27.9%.

Whether you’re renting or buying, prices are going up and availability is going down.

It seems everyone from Millennial first-time buyers to Baby Boomers are seeing the benefits of condo living.

It combines the convenience of a rental with the freedom of ownership.

But condos aren’t without their challenges. They may be appreciating in value, but that can also mean increased fees. That’s especially true if you end up in a development with an eager condo association.

 

Homeowners Associations (HOAs)

You might find the home of your dreams, but if it comes with a tough HOA or condo association, it might not be worth it.

Owning property is different from renting when it comes to dealing with the neighbors.

When you are renting, you always know that eventually you will move on, so it doesn’t matter as much if you don’t get along.

Homeownership is about the long haul. You might be living next to these people for 20 or 30 years. It’s important to understand what you’re getting into before committing to a condo or home with an HOA.

HOAs in single-family home neighborhoods may also impose restrictions:

  • Exterior paint colors
  • Yard care and tree/shrub maintenance
  • Snow shoveling and leaf raking
  • Solar panels, rain barrels, and compost bins
  • Patio décor such as lighting and plants

If you break any of the HOA rules, you can be charged a fine. And even if your HOA is affordable at first, be warned that fees can increase over time. Research the HOA’s records and financials to see how well they have managed funds in the past. Have they stuck to their budget? Have their expenses been reasonable?

Condo Associations

When you buy a condo, you are not only purchasing your unit. You’re also investing in a part of the common areas surrounding the buildings.

Condo associations have many of the same powers as HOAs, with some additions. This is because they are responsible for all the maintenance to the community buildings and grounds.

  • Paying for lawn mowing, snow plowing, and emergency repairs to common areas
  • Types of pets allowed
  • Restrictions on renting out your unit
  • Bans on certain types of patio furniture or window air conditioning units

One downside of a condo association is additional costs. If they decide to repave the parking lot or fix the hot tub, you might be charged several hundred dollars more than usual.

Condo Loans for Buying a Condominium

Condos generally cost less than single-family homes. But condo loans tend to be more costly in terms of fees and interest rates.

One of the biggest challenges of buying a condo is that most do not qualify for FHA loans. Less than 20% of the condos on the market are eligible for FHA financing, due to a long list of restrictions.

In order to qualify for FHA loans, the condo development must:

  1. Be mostly complete. With the exceptions of minor things like landscaping, the development needs to be finished before the loan application is submitted. Most new developments skip this step. That’s because the FHA-approval process is complicated. They need to get buyers in as soon as possible.
  2. Be primarily residential. No more than 25% of the complex/building can be for commercial or office space. The complex also cannot function as a resort or hotel for vacationers.
  3. Have at least 30% of units occupied by owners (if it’s a new complex) or 50% occupied by owners if it’s an older building. No more than 10% of the units can be owned by a single owner.
  4. Have adequate insurance. When you buy a condo, you are buying just what is in the interior of your unit, plus any patio or balcony space. Everything else is owned by the condo association. , That includes the walkways to the parking lot to the pool. The association must have adequate insurance on all common spaces. That means liability and hazard coverage.

And that’s just a short overview. See a list of FHA-approved condos at the HUD website.

The Veterans Association also restricts some loans for condominiums. See a list of VA-approved condos at their website.