Financing a Condo or Town House

These transaction are very similar to normal financing options offered to a single family residence, however, there are some differences that need to be considered before making an offer.

Condos and Town Homes normally do not appreciate at the same rate as single family residences. 

These homes also have Home owner associations, who collect fees which in return increases your total monthly obligation in the property.

The benefit is that you do have outside entities that allow you to have some amenities that are currently not offered in a standard single family residence, such as pools, club houses, trash removal services, snow removal services, and upkeep of common landscaping areas.

Condos and Town Homes can offer first time homebuyers a less expensive way to own a home.

Lenders do analyze these properties much closer than normal single family home loans, due to the amount of fraud and the amount of default associated with these loans.

The biggest fraud in Condo and Town Home purchases involve investors purchasing the homes as primary residences, only to then rent them out immediately after purchasing the property.  For this reason investors require that the complex have at least 51% of the residences in the complex as owner occupied units; if not, the lender will automatically treat the transaction as an investment property.

 Default risk is associated with the slower than normal appreciation for the units.  When owners find that they have to move or simply have circumstances which require them to sell the property, an equity issue can arise.  The equity issue prevents the home owner from selling, which then increases the likelihood of default.

Finally, it should be noted that Home Owner Associations are not known for their ability to serve the best interest of the complex.  Most of the horror stories I hear originate from the fact that the Home Owner Associations are controlled by a select few whom have their own interest in mind.  It is not a heavily regulated entity and should be carefully considered before making the decision to buy a Condo or Town Home.