We are thinking of buying a condo and wondering if that is the same process as buying a house?
The process is very similar, although there are some differences.
Like buying a single-family home, a condominium buyer has to make a loan application and qualify for the loan. That means having a good debt-to-income ratio (no more than 36 percent), credit score (620 minimum), and a suitable down payment of about 5 percent. Once you buy your condo, you will build equity, just as with a single-family home purchase.
In addition, condominiums are perfect for those who don't want to mow the lawn. A property management company takes care of the building maintenance, landscaping, and other systems, like elevators. The unit owner takes care of the interior. In most cases, the owner of the condo unit will pay a monthly Homeowner's Association (HOA) fee to help fund maintenance.
But unlike a home purchase, not only do you have to qualify for the loan, the condominium has to qualify. The condo has to meet lending standards. The lender wants to be sure that the condo is properly managed, financed and insured — and that is information that a condo buyer wants to know, too. In some cases, a lender might review the records of the HOA or management company that documents the standards of the condominium community. This might be information about the amount of commercial space in the building or whether condo owners are paying their HOA dues.
Condo buyers can expect slightly higher interest rates on the loan, reflecting the increased risk in the loan. Closing costs might be higher and it might take longer to close the loan.
If you are shopping for a condo, research properties carefully. The HOA or condo owners association should be financially healthy and the building should be occupied by owners.