Condo or Townhouse - What's the difference and does it matter?

Well, when purchasing either of these lenders have differing rules and regulations that they must adhere to.  On Monday, December 7 the Federal Housing Authority (FHA) implemented tighter lending standards for Condos.  These rules were enacted to protect the financial health of the FHA, who is now seeing 18% of these loans either delinquent or in foreclosure.

So are you looking at a Condo or a townhouse?  Condominium is a form of real estate ownership, a townhouse generally describes a style of structure.

Let's begin by clarifying these terms. The confusion surrounding these terms has to do with the distinction of how people legally own property vs. the type of property owned. While there are many ways to legally own property, the two most common methods are Fee Simple (sometimes called Fee Simple Absolute) and Condominium. A brief definition of Fee Simple is having an unqualified ownership interest in a property or other real estate. In most cases, people who own a home in Fee Simple not only own the home's interior and exterior, but they also own the land beneath, and in front and back of the property, as well as having some rights to the air space above the property. In contrast, people who own property as a Condominium, only own the inside of the unit itself. The land below the property, the air space above the property, the front and back yards (if any), the exterior of the unit, the stairs and grass areas outside of the unit (if any), are all owned collectively by all the unit owners within the condominium development.

Want to know if the condo community you love qualifies for FHA funding?  The Condominiums page allows users to search for FHA-approved condominium projects by location, name, or status. These properties are not for sale by the FHA. The search can be configured to find specific types of projects through the use of the pull-down menus and entry fields. The less information entered, the larger the resulting list. Enter only the criteria (full/partial) that you know to be correct or helpful in streamlining your list to your needs. If you are having problems finding a condominium, you may need to modify your search criteria.

Here's a summary of the new rules:

•Ineligible properties include condominium ("condotels"), timeshares or segmented ownership projects, houseboat projects, multi-dwelling unit condominiums [i.e. more than one dwelling per condominium unit], and all projects not deemed to be used primarily as residential.

• At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).

• No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.

•·Projects consisting of three or less units will have no more than one unit encumbered with FHA insurance.

•Projects consisting of four or more units will have no more than 30 percent of the total units encumbered with FHA insurance.

The bottom line: FHA-backed financing may be tougher but offer added protection for the consumer.  Be sure to speak with lenders, especially those who have already financed units at the project.

Search for condos in the Greater Nashville area.