Buying, owning condo has its downside
BY PATRICIA MERTZ ESSWEIN Money Power
Sunday, October 28, 2012
10/28/12 at 6:43 AM
Condos have traditionally attracted first-time buyers who are ready to own but don't want the upkeep a single-family detached home with a yard requires. They also appeal to empty-nesters and retirees who want to trade a house and yard for convenience and, sometimes, coddling in a luxury high-rise.
But condo ownership has its downside.
Because the association of owners shares responsibility for the building's exterior and common areas, you pay a monthly fee in addition to the mortgage payment, and you could be liable for special assessments to cover unexpected repairs. And today you face new challenges: limited selection and tight mortgage financing.
In many cities, including Atlanta, Boston, Los Angeles, New York, Orlando and Seattle, the selection of condos for sale is limited. Across the U.S., the number of existing condos for sale has fallen by just more than half since 2010, according to the National Association of Realtors.
Plus, buyers at the entry level may still be competing with investors for the best bargains. Competition for move-up properties is more muted because many buyers in those markets must sell another home first.
Looking for new construction? Most developers don't need to offer incentives to attract buyers now. Developers offer the best prices before they've sold half of the project's units - but the earlier you buy, the greater your risk that the project will never get off the ground. You may also get a better deal when a developer wants to get rid of the last few units.
You may find some of the best prospects in buildings that are just a few years old. However, the owners associations of some new buildings may still be struggling with legal problems left over from the developer, dealing with structural or mechanical problems that took time to emerge, or trying to establish a working condo board.
To get a mortgage for a condo, you have to jump through more hoops than for a single-family home. Not only must you qualify for financing, but also the building where you buy must qualify with the Federal Housing Administration, Fannie Mae and Freddie Mac.
When you apply for a conforming mortgage guaranteed by Fannie Mae or Freddie Mac, your prospective lender will perform a risk assessment of the condo association and may overlay even more-stringent requirements of its own.
Original Print Headline: Buying condos has its downside
Patricia Mertz Esswein is an associated editor at Kiplinger's Personal Finance magazine. To send her a question or comment, go to tulsaworld.com/kiplingerfeedback.