January 3, 2011
Those who buy suburban homes with an FHA mortgage have a set of requirements and responsibilities; some neighborhoods have home owner’s associations with bylaws and clauses that must be agreed upon. Others don’t, but find they have their own community standards and informal covenants to live up to.
When it comes to FHA condo loans, the buyer shouldn’t expect to have the same experience as when purchasing a suburban home. Condo purchases carry unique responsibilities the buyer should consider before agreeing to purchase.
Condo purchases involves owning a unit within a community similar to a residential neighborhood–there are owner’s associations, rules and covenants.
When it comes to condo loans, FHA borrowers will find they must coordinate with fellow condo owners in that building on issues such as common area maintenance and upkeep, roof repair or replacement, balconies, and other issues that affect all the tenants as a group. Compare that to purchasing a house in the suburbs; the buyer is solely responsible for maintaining his or her own roof, balcony, etc.
The FHA recommends potential borrowers carefully study the management agreement, any covenants or bylaws and other details that affect the FHA borrower as a new owner in that particular building. Condo associations must carry liability insurance, flood insurance where applicable, and any other coverages required by law or the terms of a condo loan. How does that affect your bottom line? How much are owners required to pay for common insurance or upkeep?
One thing that may confuse potential FHA condo loan borrowers is the label itself. What makes a condo different than an ordinary apartment unit (aside from the ability to own a condo versus renting the apartment)?
The classification has more to do with the way the property is owned and sold rather than the physical configuration of each unit for sale–there’s no “condo” template or architectural design specific to condomuniums. Some buildings are converted to condo units by major physical renovations to created individual units where none existed before. Others are simply painted and given new carpets, “converted” from apartment buildings to condos.
The actual terms of your FHA condo loan may not be radically different than a traditional home loan purchase, but the responsibilities the buyer must agree to in order to close the deal may be different than what buyers expect when considering suburban neighborhood-type properties. Know the differences before you sign.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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