Buying a Chicagoland Condominium?
Get Educated and Informed First
Many home buyers, especially first-timers, don't know about (or are confused by) the differences that exist between condominiums and townhomes.
They also don't know that those differences can trickle down to how ownership is held on these properties ...
The fact that the differences between these properties are not always something that can be easily seen visually ... definitely adds to this problem. The differences between the two can be almost indiscernible.
So it becomes vitally important, when considering a purchase of either type of property, that Buyers work with a Chicagoland agent and mortgage originator that is thoroughly educated and experienced in their transacting and financing.
This education and experience matter greatly. And it's an area where my background and experience, including 20 years of Chicagoland real estate appraising experience, offers my Borrowers/Buyers a definite advantage.
In this article, properties legally classified as Condominium will be the focus. The property, typically referred to as a "Unit", will lie within a legally platted condominium site and a legal "Condominium Association".
The property has been established ... and recorded ... as such. The recorded documents established the Declarations and By-Laws, and any/all rules (covenants) that outline, detail, and mandate how the Condominium Association is run.
What Chicagoland Buyers/Borrowers of Condominiums need to know:
- When buying an individual condominium unit, you're buying the individual rights to that unit
- The other unit owners (and you) are "equal owners" of any commonly owned facilities within the project.
- Those facilities and services (if they apply to your Association) can include:
* First: Common areas are defined as those areas of multi-owner real property which are meant for the exclusive use of all individual owners.
* Common Areas such as: Hallways, Laundry Rooms, Storage Areas, Balconies, Patios, Mechanical Rooms, Parking Lots, Driveway Access, etc.
* Common Areas where: Recreational Facilities are found, such as green areas, Playgrounds, Water Retention Areas, Pools, Tennis Courts, Exercise Facilities, Security Gates, Party, Clubhouse, or Recreation Rooms, etc.
* HOA Services: Snow removal, landscaping, etc.
Common Areas need to be maintained and paid for. This is done via the "Homeowners Association Dues/Fees" which are typically paid monthly, paid directly to the Association (or its professional management company).
Also: Many Condominium Homeowner Associations maintain rules that must be adhered to by its Owners. They're called Covenants and Conditions and Restrictions (CC&R). Prospective Buyers should ask if the property under consideration falls under these rules prior to entering into Contract.
Common CC&Rs cover:
- Pet Ownership (What breed, how many, where they can be walked)
- Noise Restrictions
- Smoking Restrictions
- Parking Restrictions
- Use of Clubhouse, Pool, Tennis Courts, etc.
- More ...
It's important for Buyers to know: Homeowners Association Dues/Fees are included in the Mortgage Lender's Monthly Housing Expense Calculations.
The amounts and dues/fees paid can vary greatly from one Association to another, as you can imagine. Most typically, the more upscale or more amenities offered, the higher the Association dues/fees are.
Those dues/fees can have a huge impact on a Buyer's Monthly Payment. That in turn, can affect the outcome of a Buyer's Loan Approval.
How and Why is that true?
The impact on the Buyer's Monthly Payment directly relates to the "Debt-to-Income" analysis conducted for financing. Debt-to-Income is calculated by dividing the total recurring monthly debt by the Borrower's Gross Monthly Income. The DTI (Debt-to-Income) is expressed as a ratio or percentage (%) figure.
Buyers considering a Condominium purchase can ill-afford to be caught off-guard regarding the type of property they're purchasing ... or the Association Dues/Fees that may accompany it. Buyers need to possess information regarding the true definition of "Condominium" and "Planned Unit Development" (PUD) and a thorough understanding of each.
The health and standing of the Homeowners Association under which jurisdiction the property lies is as important for a Buyer to know as the Sales Price (and condition) of the property. The same goes for the Real Estate Taxes that accompany the property.
Buyers need to ask the following questions about the financial stability of the Homeowners Association:
- What is the budget of the Association?
- Is the Association financially sound?
- Are there repairs needing to be made to the Building's exteriors?
- Are repairs needed or planned for any common areas?
- Are there any upcoming "special assessments" for Buyers? (If major expenses arise within the project, and the Homeowners Association does not have the money (reserves) to pay for them, the Association may charge an extra assessment fee to HOA property owners)
- What increases in Fees/Due have occurred in the past?
- How large were the past increases?
- More ...
Also important to know:
- How is the HOA governed?
- Are rentals of properties allowed? If so .. how many?
- What insurance does the HOA have?
- More ...
I can't stress enough just how important it is for potential Condominium Buyers to become informed and educated about Condo Ownership ... to gain full knowledge about the specific property they're considering ... and the health of the financial health of the Condominium Association involved ... prior to the signing of any Contract. Ask questions of your Agent and me, your Chicagoland loan officer. Gather facts. Do your homework well and proactively.
Thinking of buying a Chicagoland Condominium? Get educated and fully informed prior to signing a Contract.
What you find out and learn matters. To the quality of life you'll lead. To your financial health ...