What Is a Condo? Condo is short for condominium. A condominium is a form of ownership where you own the interior walls of the home and the exterior is owned collectively through a HOA ( Home Owners Association) I have read some descriptions that seem to say it is the same as an apartment that you own. While it may be true that many apartment buildings have been converted to condominium ownership this represents a small portion of condo’s here in the Philadelphia, PA Metro area and leads to the confusion that there is some physical description of a condo.
Pick the Condo?
- 4,000 Square Foot Colonial
- 900 Square Foot Flat
- 1800 Square Foot Townhouse
- 200 year old Farm House
- 1100 Sq. Ft. Garden Villa
The correct answer would be “All of the above”. Really! You can have a 4,000 square foot Colonial that is part of a Condominium. The association owns the golf course, the club house and maintains all the grounds and the exterior of the homes.
If it has an HOA Fee is it a Condo? No… It could be a PUD (Planned Unit Development) A PUD differs from a condo in that you own both the interior, exterior walls and usually a small parcel of land and are responsible for the maintenance. A good way to tell is to ask about roof replacement. You are responsible… PUD. Association is responsible… Condo.
Another distinction is the home insurance. A condo will include the major fire and liability insurance as part of the association fee. You will be responsible for an HO6 policy which is like a renters policy for contents PLUS coverage for things like kitchen cabinets, flooring, appliances, bathroom and light fixtures and possibly windows and doors. Think of things that would normally be part of the home as fixtures but are inside the walls. A PUD will need a standard home insurance policy like an HO3 endorsement or similar.
A PUD and a Condo are similar in that both have common elements. Common elements are the things owned, maintained and controlled by the association; Pools, Tot lot, Common hallways, grounds, parking areas, Club house, etc. Both must also have a master insurance policy to cover the common elements. Remember that you are a member of the association as well.
Are There Risks To a Condo? Yes… lenders generally will have a different set of guidelines for a Condo than a PUD because of the increased risk. Here is a quick guide;
- 1,000,000 liability insurance
- Reserves for maintenance
- Current budget
- Investor ratio
- Ownership by Single Entity
- NO first right of refusal
- Control of Association
- Pending Lawsuits
- Delinquent Assoc. Fees
A current questionnaire will be sent to the association to complete for the lender to review and this may cost several hundred dollars in some cases. If the lender or PMI company are not satisfied they will decline the loan.
WARNING: if the Condo Association is not healthy it could prevent financing in the development. No FHA, No PMI … this would result in 20% to 25% down payments and possibly No financing so that all purchases would need to be cash. This would negatively impact your value. Always review a Condo’s info before a purchase.
Can I Have a Dog? You have the right to review the Association rules and regulations as part of your Agreement of Sale. READ THEM!! You will have to live by them. You may not be able to have a dog or it’s size may be limited. You may only be able to paint your front door red. You may not be able to place a grill outside or a table. You may not be able to put a flower pot on the front steps or porch. You may not be able to park a car or truck with any writing on it… company pickup with the name on the door.
Rules can be good as it keeps the development at a certain standard but sometimes it can also prevent your enjoyment of your home. Make sure you are comfortable with the rules before you buy. Associations all vary… some are very loose and others very tight so please read the rules.
A cape, townhouse, flat or garden villa are styles of homes, a Condo or PUD are a variation of ownership and have no physical description.
For more info checkout the website www.PaFhaMortgage.com
By Bill Frantz