If you’re getting ready to buy your first place, you may have your eyes on a condo. Perhaps it’s because the idea of low-maintenance living is attractive, or maybe because it’s all you think you can afford. OK, who are we kidding: it’s TOTALLY because you think it’s all you can afford. But there’s a lot more to consider about condo living than the sales price—especially when your financing is coming from the Federal Housing Administration (FHA).
FHA condo requirements
The truth is, buying a condo with an FHA loan is a tough fit.
“Often times, there are restrictions regarding mortgage financing on condos,” said US News. “And many condo complexes don’t allow FHA loans and other special types of financing.
So what’s a condo buyer to do? Seek alternate financing, for starters. But, back to that down payment issue. If your funds are low and you need a minimum down payment situation, new conventional loans from Freddie Mac and Fannie Mae that offer a three-percent down payment can be a great alternative to FHA loans. This loan, referred to as the 97% LTV, is for homes and condos, but…Fannie Mae and Freddie Mac are notoriously intolerant of condos; they won’t typically lend on any that have too many investor-owned units, too many renters, or too many owners who aren’t current on their HOA dues.
Yes, in a condo you are often responsible for what your neighbors are or are not doing, and it can impact your ability to even get into the community as an owner.
Increased costs
If you’re set on pursuing a condo, make sure to ask your Realtor to key in on only the listings that suit your financing. Your pool of options may be small, especially in the San Fernando Valley and Santa Clarita Valley, where FHA-approved condos are rather scarce, but at least you won’t waste time on anything that your lender will reject.
You’ll also want to be aware that once you find a condo, you may end up paying more for it. Not because of the list price, but because of potentially higher mortgage rates for condos, plus HOA fees that can be up to several hundred dollars per month. An exceptionally high HOA could even put your loan approval at risk if the monthly fee when added to your PITI—which will include private mortgage insurance (PMI) since you are putting less than 20 percent down—ends up beyond what the bank will sign off on.
You’ll also want to make sure your L.A. Realtor thoroughly checks out the condo association’s finances and maintenance/repair records. While some future repairs are unpredictable, having as much information upfront about the state of the communities and their financial status can help protect you against costly assessments in the future.
“Every month, a portion of your condo fees goes into the development’s reserves. That’s where the condo association gets the money to fund occasional projects, such as repainting the building’s exterior,” said US News. “If an expense can’t be delayed—let’s say a pipe burst and there isn’t enough in the reserve to cover repairs—condo owners could be asked to pay an assessment, which can range from a minor pittance to thousands of dollars.”
So what are your options if you figure out that a condo just isn’t for you but you still want to own something of your own?
Buying a single-family home
How about buying a single-family home? In some cases, it’s easier to than a condo because of the aforementioned issues. The available options may even be greater because the bank won’t apply their stringent requirements to homes the way they do with condos.
A few more reasons to step up to a single-family home:
- You may be able to get a lower interest rate on a home
- You won’t have HOA fees in many areas
- If you have the budget (and the loan approval), not having HOA fees of $250 a month could get you $50,000 to $60,000 more to spend on a home
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Tripp Jones is a leading Los Angeles real estate agent with years of experience working with buyers, sellers and investors. For more information, click here.
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