Are high prices keeping you from achieving homeownership? Consider a condo
Key takeaways
- Condo prices are typically much lower than single-family home prices, offering first-time buyers hope in today’s challenging housing market.
- Condo owners should be mindful of additional costs, such as HOA fees and special assessments.
- The lower price tag comes with downsides as well, including strict rules and regulations and increased lender scrutiny.
More than 3 in 4 (78 percent) of U.S. adults said that owning a home was part of the American Dream, according to Bankrate’s Homeowner Regrets Survey. That’s far more than other life milestones, such as having children (45 percent) or getting a college degree (35 percent). In today’s housing market, however, it’s also much harder to make that dream a reality. An imbalance of supply and demand has pushed home prices to an all-time high, while rates for 30-year mortgages continue to linger near the 7 percent mark.
But does that mean you should abandon your dream of homeownership? Not necessarily. Instead, consider getting yourself on the homeownership ladder for less by shifting your search from single-family homes to condos. Read on to learn more about buying a condo, and whether it can help you overcome home affordability challenges.
What is a condo?
Let’s start with the basics. Short for condominium, a condo is a single unit within a multiple-unit property. It can be one of many units in a shared structure, like a high-rise building, or it can be in a much smaller building with just two or three units.
Buying a condo is typically cheaper than buying a single-family home, which makes it an appealing option for first-time buyers and helps you start building home equity sooner. But the similarities between condo life and apartment life can also be a plus, says Mark Hamrick, senior economic analyst at Bankrate.
With a condo, you typically have a lower cost of entry and lower maintenance costs.— Mark Hamrick, Bankrate Senior Economic Analyst
“The transition from renting an apartment to buying a condo can be much less dramatic than going from an apartment to a single-family home,” Hamrick says. “With a condo, you typically have a lower cost of entry and lower maintenance costs. You’re also typically located in a fairly dense urban setting with easy access to more amenities and mass transportation.”
Anyone who’s thinking about buying a home should understand what the purchase includes. With a condo, no matter how big the building or property is, you own your individual unit. You also enjoy access to common areas and shared amenities, which might include parks, pools, playgrounds, fitness centers and other public spaces. (There is typically a monthly fee that covers the maintenance of these areas; more on that later.) Condo owners also pay for their own property taxes and utilities.
Shared areas of condos are usually managed by a condo association, which is a type of homeowners association. It typically acts as a supervisory board and hires a property management company to handle maintenance, communication with residents and other duties. Some may impose additional fees to cover shared expenses, such as unexpected building repairs or new amenities.
Why buying a condo is cheaper than a house
One of the key points of differentiation between a condo and a house is price: Condos are typically cheaper. The median price for an existing condo or co-op was $371,100 as of June 2024, according to data from the National Association of Realtors — a sizable savings versus $432,700 for a typical single-family home.
However, the saying “you get what you pay for” rings true here. When buying a condo, you’re purchasing only the interior space of your dwelling unit. The land and other facilities are owned in common with the other owners of the complex. Condos also generally come with less space: You may not have your own backyard, for example, and the overall square footage tends to be smaller than a single-family home.
In addition, while house owners are relatively free to make changes to suit their personal needs and tastes, condo owners may face challenges getting permission to remodel to their liking. “If the owner of a single-family home needs to replace the windows, they have the discretion over when to do it and what kind of windows to buy,” Hamrick says. “With a condo, it’s generally up to the governing body.”
It’s important to take the cost of the condo association’s monthly fees into consideration when you budget for your home purchase as well. These fees might not be set in stone: “Like property taxes, there is some risk associated with HOA fees increasing over time or with large, one-time special assessments,” Hamrick says.
Still, some of these tradeoffs can be worth it: Homeowners needed an annual salary of $110,871 to afford a median-priced home of $402,343, according to Bankrate’s Home Affordability Study. Since the median price of a condo can be significantly lower than a single-family home, someone on a five-figure income may still be able to afford to buy. For example, Redfin data shows that the typical condo in Phoenix sold for $315,000 in June of 2024 — that’s around $175,000 cheaper than a median-priced single-family home in the city.
8 expert condo-buying tips
1. Consider your lifestyle
Condo living means greater home affordability, with less effort and expense for home maintenance. So if you want to save money and don’t want to deal with lawn care or snow shoveling, a condo might be for you. However, if the desire for a large backyard outweighs the time you’ll need to spend maintaining it — or if sharing walls, ceilings or floors with a neighbor seems unappealing — a condo might not be your best option.
2. Find a Realtor who knows the condo landscape
If you’ve decided that buying a condo is for you, you’ll want to find a local real estate agent who understands the ins and outs of the process — ideally, someone with a track record in condos. An experienced agent will be able to address any concerns you might have and guide you through the process. Additionally, agents who are plugged into the local condo scene know whether particular buildings have had past financial troubles or community issues.
3. Think about what amenities you want
Some condos might include offerings that simply cover basic upkeep of the common areas, while others can include a gym, pools, outdoor grills and other luxury perks. When looking at condos, think about the amenities you really want and will actually use. You’re buying access to these amenities when you buy your unit, and more amenities usually means higher fees, so be mindful of how they’ll affect your budget.
4. Review association fees, regulations and financial reserves
Look into the condo association fees and find out exactly what’s covered by them. Ask how often — and by how much — the fees increase each year, too, to get a sense of how that amount might grow once you move in. It’s also a good idea to ask about the community’s house rules. Are there any noise restrictions, or rules about booking common areas in advance? Understanding these ahead of time will help you figure out whether the community you’re looking at is really a good fit for you. Finally, ask for copies of at least the three previous years’ financial reports, and make sure your lawyer or accountant reviews them to ensure the community’s finances are sound. Reserve funds are especially important if the building is older, since age often comes with more need for upkeep.
5. Understand the nuances of condo mortgages
It’s smart to seek out a mortgage professional with condo experience to find the right financing for your purchase. Condo loans can be a bit trickier than a typical single-family home loan, even if you have an excellent credit score, as the lender will want to scrutinize the finances of the condo development as well as your own personal finances. And if you’re looking to use an FHA mortgage, browse the listing of Federal Housing Administration approved condos found online to make sure any properties you have on your house-hunting list will be eligible.
6. Ask about special assessments
Special assessments are extra charges the condo association may impose to fund a significant project. An assessment is usually voted on by the board, if not all of the community’s residents. They are usually imposed for a limited amount of time, but they’re a good thing to be aware of because they’ll affect your budget while they’re in place. If the association is planning to replace the building’s elevators in the coming year, for example, you might be able to use this as a bargaining chip with the seller.
7. Research the property management company
Understanding who will be in charge of doing the upkeep for the property is crucial. It can be frustrating to pay monthly dues only to have the amenities fall into disrepair, and poor management can potentially affect your property’s value or push your dues even higher. When touring condos, ask who is in charge of maintaining the day-to-day operations. You can direct questions such as who handles resident requests and community rules to the property management company itself.
8. Plan ahead for the big picture
There can be less home price appreciation with a condo — if you want to make a substantial gain in wealth, it may take more time.— Mark Hamrick, Bankrate Senior Economic Analyst
A condo can make an ideal starter home, but it’s wise to recognize that you may eventually outgrow a one- or two-bedroom unit. One of the big benefits of owning a home is the chance to cash in when you’re ready to move: If home prices have gone up, you stand to earn a nice profit. But keep in mind that condo values may not increase as much over time as houses do. “There can be less home price appreciation with a condo,” Hamrick says. “If you want to make a substantial gain in wealth, it may take more time.” However, if you can afford to hold on to the condo after you move out, you might also be able to earn a steady rental income. Be sure to research the building’s rules regarding renters to know whether it’s permitted.
Pros and cons of buying a condo
If home affordability challenges have you considering a condo, here are some top factors to think about:
Pros
- Lower price: Condos usually have much lower entry price points than freestanding homes, and property taxes tend to be lower, too.
- Less maintenance: Condos require less attention than single-family homes, with less responsibility for upkeep since the HOA handles a lot of the work.
- Socializing opportunities: Some condo associations organize social events for residents, like barbecues and holiday parties, which can be great if you’re new to town and don’t know many people yet.
- Amenities: Many communities offer access to top-notch amenities like a grilling area, fitness center, pool, dog park, clubhouse and more.
Cons
- Rules and restrictions: Condo rules can be restrictive, regulating everything from how many pets you can have to what items can be stored on your patio.
- Fees: In addition to your monthly mortgage payment, there will likely be a monthly fee to cover amenities, maintenance, insurance and reserves, which tend to increase over time.
- Investment risk: If a fellow condo owner goes into foreclosure and their unit changes hands at a steep discount, for example, that will affect everyone’s property values.
- Less privacy: You may be sharing walls, ceilings and floors with adjoining owners, so noise can become an issue.
FAQs
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Yes. If you’re a first-time homebuyer, a condo can be an especially appealing option. The lower price is the obvious perk, but you might already be accustomed to condo-style living if you’ve been renting, too, so you can continue to have that type of experience while also building home equity.
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No. While the listing price of a condo may be lower, the requirements for securing a mortgage for one may be tougher. That’s because lenders apply an additional layer of scrutiny in their underwriting, examining the association’s financials as well as your own. Condo mortgages tend to come with a slightly higher interest rate than single-family homes as well.
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The survey on homeownership and the American Dream was conducted by YouGov Plc. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,317 adults. Fieldwork was undertaken between 6th-8th March 2024. The survey was carried out online. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.
The survey on six-figure salaries for home affordability is based on an analysis of annual income needed to afford a median-priced home in all 50 U.S. states and the District of Columbia in 2024 compared to 2020. Bankrate accessed Redfin’s median sale price data from January 2020 and January 2024 on February 26, 2024 to calculate monthly mortgage payments for every state, the District of Columbia and nationwide to determine how much Americans need to earn to afford a typical home.
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