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Financing Your Condo, Co-Op, or Townhouse
Paying for a dream home is easier than you think.
Finding a condo, co-op, or townhouse to call home is hard enough, but finding financing to buy this kind of property is even more challenging. As a veteran mortgage banker and author of Mortgages 101, David Reed has helped thousands of buyers through this complicated process. Financing Your Condo, Co-op, or Townhouse offers readers invaluable advice, including information on developer financing, specialty loans, government programs and refinance loans, streamlining the approval process, appraisals, closing costs, and more. Readers will discover:
� the differences among condos, co-ops, and townhouses
� how to find the right type of property for them
� the rules governing loans for condos, co-ops and townhouses
� how to evaluate which loan type is best and lock in the lowest rate
� why the percentage of owner-occupied units is important
� what to consider when buying new construction or conversion properties
� the financial considerations unique to each type of home
Whatever the property, whatever the question...this handy guide to financing has the answers.
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June 23, 2009
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Excerpt from Financing Your Condo, Co-Op, or Townhouse by David Reed
Condos, Co-ops, and Townhouses: How Are They Different and How Are They Similar?
So you want to own a condo, eh? Live the urban lifestyle,
park the car, and walk to work. You know, all the "condo"
things. Condominiums first began to take hold in the real
estate marketplace in the late 1970s, offering an alternative to
the often more expensive single-family residence.
Or is a "cooperative" or "co-op" in your plans? Co-ops, found
in most major (primarily East Coast) cities, offer a similar alternative
to apartment or single-family homes. Although co-ops
are similar to condos, they're not the same as condos.
Townhouses, too, are just a tad different from traditional
single-family residences. They also are grouped into a legal
"community" that has certain rules similar to condominium or
co-op arrangements (we'll discuss those rules in detail in chapter
5) yet appear more like a traditional single-family structure.
Either way you decide, condos, co-ops, and townhouses represent
different lifestyles and offerings from living in a suburban
or rural home.
But first, exactly what is a condo, a co-op, or a townhouse?
Technically, a condo is a legal association in which the individual
owns the interior of his or her own unit and the entire
group equally shares ownership in the common areas of the
This condominium association is charged with enforcing
the rules and regulations set forth in the condominium's legal
documents called Covenants, Conditions and Restrictions, or
CC&Rs, which we'll examine in more detail in chapter 5.
When you first imagine a condo, you might think of a tall,
downtown building encasing lots of individual living spaces.
And in many instances that would be correct. But a condo doesn't
have to be all in one building, or be tall or short. A condo may
consist of separate buildings, some connected, some not. A
condo can be a collection of single-family residences that from
the outside don't look like a typical condominium at all. In other
words, you can't recognize a condo just by looking at it.
There are different types of condos, and some of the differences
can affect the type of financing you obtain. There are:
-- High-rise, mid-rise, and low-rise
-- One- to two-unit condos
-- Condominium conversions
High-Rise, Mid-Rise, and Low-Rise
These terms refer to how many stories, or floors, there are in
the project. A low-rise is typically one to three stories high, a
mid-rise is four to nine stories, and any condo more than nine
stories is a high-rise. Typically, high- and medium-rise condominiums
are found in downtown, urban areas.
Sometimes lenders will require a bigger down payment for a
high-rise condo than for a low- or mid-rise. Financing a highrise
could result in a higher interest rate or an additional lender
fee as well.
One- to Two-Unit Condos
Sound a bit odd? Why would anyone have a one- or two-unit
condo? What's the point? In fact, this trend began when people
figured out they could buy a stand-alone duplex (two attached
houses) or a fourplex--four separate houses--all connected.
The idea caught on when turning a duplex into a two-unit
condo made sense. The owner could buy the duplex, turn it
into condos, and sell those condos separately instead of selling
the duplex all at once. The same goes for a triplex or for a fourplex.
A buyer acquires a multiunit structure, does all the legal
work to turn it into condos, then sells them one by one, which
often results in more profit for the seller. However, there is little
demand in today's real estate market for one- or two-unit
condos compared to single-unit, owner-occupied real estate.
A conversion is typically an apartment building that has been
turned into condominiums. Lenders may have special condoconversion
guidelines that the developer must meet. For
example, making sure the condos have separate firewalls or
stipulating that other recent conversions in the area must be
80 percent presold (which means that if there are 100 units, 80
of them must already have sales contracts on them).
You can't recognize a condominium conversion just by looking
at it. Nor can you tell whether your lender will put any special
conditions on it. But a little advance research will tell you.
One can probably guess what a condotel is: a condominium
complex where individuals own the condos, but some or most
are rented out by the day, week, or month, just like a hotel.
In this case, you can tell a condotel when you see it because
it will have a check-in desk and hotel-like amenities. Few
lenders make loans on condotels.
Condominiums have common areas such as sidewalks, swimming
pools, recreation rooms, and health clubs. These common
areas belong to the condo owners. No, you may not remove
"your section" of the sidewalk and haul it upstairs. You may not
claim a stake in your 1/100 of the pool and make the other
swimmers keep out. Everyone owns the structure and amenities
equally, as well as the land where the structures stand.