Investors and retirees are warming up to the idea of buying condos. It’s not a surprise given that condos come with numerous merits, maintenance-free living and they are usually located in prime locations.
Condos make fantastic investment properties because they can be easily managed from another location.
Even families are now buying condos as their second homes at popular vacation destinations so that they can spend their holidays there.
As much as condos have a lot of perks, you need to understand that there are costs that come with purchasing.
These costs won’t typically be there if you were buying a single-family home or a townhouse.
You never have to worry about replacing your broken windows, fixing your roof, or paying for landscaping fees.
All this will be done for you by the condominium association, but it won’t be for free. There is a price tag attached to that.
The charges can be annual, quarterly, or monthly. They cover the maintenance costs of the building and other activities that are required for you to enjoy a stress-free living.
You may be excited about the low purchasing price of a condo, but you need to check out the HOA/POA dues because they become hefty as the building ages.
Just because the association is responsible for maintaining the property doesn’t mean the money will be coming from their pockets. The property owners have to pay for the repairs and upgrades.
Knowing how much the HOA/POA fees are before purchasing and how frequently you will be paying them allows you to make a sound decision on whether you can afford living there or not.
Also, remember that the fees are not optional and failure to pay can result in a lien on your condo or foreclosure.
In any beach town, high-rise condos dot the beachfront. One of the biggest appeals for such is the location.
Many of them are directly on the beach which means you will have priceless views, but remember that it comes at a cost.
The standard homeowner’s insurance policy will not be enough for you. It doesn’t cover any damages that may be caused by hurricanes, wind damage, or flooding.
With a condo next to the ocean such calamities are a high possibility which means you have to get additional flood insurance for that.
The HOA‘s responsibility when it comes to insurance will just cover the exterior of the structure and you have to take care of the interior of your unit.
Besides the monthly mortgage payments to be made, insurance, property taxes, and HOA dues you have to budget for special assessments as well.
These are additional dues the HOA can ask from condo owners to cover any unplanned expenses that might come up.
These don’t cover the routine maintenance but rather unexpected expenses that are out-of-the-norm. Something like rebuilding balconies which are deemed unsafe can warrant for special assessments dues to be demanded from the condo owners.
The money to be paid in this case can be several hundred dollars to thousands of dollars. Thus, when you are buying a condo you need to create an emergency fund to cover that.
Get to know how much the special assessment demanded before were. Also, ask about how much time you will be given to come up with the money as well as the protocol in place when implementing special assessments.
Ask as many questions as possible to clear any doubts because once you sign the purchase contract there is no going back. Just like HOA dues, paying special assessments isn’t optional and your condo can be foreclosed if you fail to pay up.
Private Mortgage Insurance
You can take a mortgage to buy a condo but one thing you have to remember is that if your down payment was less than 20% of the total cost you will have to pay PMI.
You may not have lenders scrambling to give you a mortgage though because sometimes the value of condominiums is variable depending on the comparable sales in the building as well as the value of the entire building.
Given how unpredictable these factors can be, condo mortgage insurance may be a challenge to get. However, you won’t be allowed to have a mortgage without insurance, and this may mean having to settle for a more expensive option.
The more money you have saved for buying the condo the better. However, there is always a way, and you shouldn’t be discouraged.
Condo Closing Costs
Just because you have come up with the down payment and secured a mortgage to buy a condo doesn’t mean that is the end.
There are associated closing costs you need to be aware of and save up for. Knowing the approximate amount that will be required allows you to budget for that. Here is what you will need:
Closing costs: before closing
a)Property appraisal: Often paid by the lender. Approximately $400-$500
b)Deposit: Usually 5% of the total purchase price and you have to pay it within a day once the offer has been accepted.
c)Home inspection: Budget for $400-$700 to cater for this. This is paid at the time of the home inspection.
Closing costs: on closing
a)Legal fees: These depend on the purchase price. Expect the legal fees to be about $1,800 if the purchase price of the condo is half a million dollars.
b)Balance of the purchase price. This is the amount remaining after you paid the initial deposit. The bulk of it will come from the lender in the form of the mortgage you already got.
c)Title insurance. This is sometimes included in the legal fees and it costs between 250 and 400 dollars.
d)Land transfer tax: Determined based on the purchase price.
e)Property survey: If needed it will cost you $1000-$2000
Buying a condo is a simple task if you know all the costs you will have to cover and you have the money. On the same note, ensure you have an extra amount in case some unexpected expenses come up.
Remember to have some amount left to cater to utility connection charges, renovations, moving expenses, and even any repair and maintenance costs that may be required immediately.
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