You’re ready to buy a house, but you’re not sure whether a condo is worth the price tag – or if it’s the right fit for you and your needs.
While you’re likely considering a host of factors – the size of your family, your lifestyle, how much you love or hate yard work – we’re here to let you know that you should also be looking at the varying costs that come with buying a condo, such as HOA fees. These costs might help sway your decision about whether owning a condominium is the better choice for you versus another property type. Let’s break down condos together so you can decide if there’s one in your future.
How Much Does A Condo Cost Vs. A Single-Family Home?
Single-family homes tend to be more expensive than condos, which might have an impact on your decision. The National Association of REALTORS® reported that the median price of an existing single-family home stood at $334,500 in March 2021. The association also said that the median price of an existing condo unit was $289,000 the same month. That’s $45,500 less – a difference of more than almost 15%.
It’s important to remember that these costs are much higher in the last year compared to previous ones. These changes are due to a shortage of supply, and borrowing rates being at historic lows. Many first-time home buyers are skipping renting and are ready to purchase their first home. You just might look at these stats and seriously consider becoming a condo owner.
However, the purchase price is just the first factor you should consider when debating the costs of a single-family home (or any property type, for that matter) versus the price tag of a condo. Another factor to consider is how much of a down payment you can afford.
Condo Fees, Homeowners Association Fees And Assessments
The most important additional costs that come with owning a condo are condo fees, better known as HOA fees. This is a regular charge you pay, usually monthly, to cover what could be a long list of costs, including the maintenance of your condo’s common areas, your building’s snow removal services and its lawn care. The HOA fee also often covers city services such as garbage pickup, water and sewage.
The cost of this fee will vary, but you can get a general idea of what you might expect to pay by looking at what other states pay. For example, since New York City is known for being more costly, your HOA fees should you live there could jump up all the way to $1,500, while Florida’s HOA fees might only be around $300.
When it comes to HOA fees, it really depends on the condo you pick. Some charge more because they have more amenities and expenses to take care of, while others charge less because they aren’t doing much around the property. Make sure to do your research on how much you’ll be adding to your monthly expenses due to HOA fees.
Special Assessments
You might get hit with a special assessment when owning a condo. Your condo development’s homeowners association will charge this fee if the development needs extra money to take on a major repair, such as replacing an aging roof or repairing a damaged swimming pool. Associations are supposed to build a reserve fund for emergency repairs, but some repairs are so major that the reserve fund can’t cover them.
When your homeowners association charges a special assessment, you’ll have to pay additional money each month to pay your share of the development’s repair work.
Condo owners can’t always predict when major repairs – and the assessments that come with them – might be on the horizon. But Melissa Assael, a broker with the Syosset, New York, office of Douglas Elliman Real Estate, says that they can prepare for the possibility of future assessments by asking the right questions before buying into a condo development.
“Ask about major projects,” Assael says. “When were they last updated, and are they expected to be improved in the future? This would include items like roofs, roads, clubhouses and major landscape renovations.”
This goes to show that when purchasing anything, whether that be a condo or a single-family house, it’s always important to ask questions before signing your name. You never know what might come up – and if you’re faced with extra expenses, you’ll want to know about them before investing in a real estate property.
Maintenance
When calculating the costs of buying a condo, it’s important to consider maintenance costs as well. It doesn’t necessarily matter if the house is new or old – maintenance costs can show up when you least expect it. Saving for emergency repairs to a leaking roof or a burst pipe, or to clean the gutters or replace the filters on heating and air conditioning units is always a smart idea.
It's also a good idea to set aside 1 – 3% of your home’s value each year for maintenance expenses. If your home is older, consider saving for the higher side of that range.
Maintaining a condo is going to cost less, although how much less will depend on the amount of life left in your unit’s furnace, air conditioner, dishwasher and other mechanicals, because you’re typically responsible for everything located on the inside of the unit.
Do You Need Homeowners Insurance?
When you buy a condo, you’ll have to purchase homeowners insurance if you’re financing your purchase with a home loan. Lenders won’t give you a mortgage if you don’t first purchase insurance.
Your condo building will have its own insurance policy covering the development’s common areas. You’ll help cover the costs of this through your monthly HOA fees. But you’ll also have to take out a homeowners insurance policy for your individual condo unit, which will protect you if your own unit is damaged or items from it are stolen.
The cost of an individual condo insurance policy will vary, but it tends to be less costly than a policy covering a single-family home. The reasoning behind the lower cost? You’re protecting a smaller space with condo insurance, and you’re not protecting the exterior of your unit.
The average cost of a condo insurance policy is $488 per year, according to financial website ValuePenguin, while homeowners insurance costs an average of $1,445 per year. However, these costs will vary quite a bit depending on your area of the
Do You Pay Property Taxes On A Condo?
You’ll have to pay property taxes whether you’re buying a single-family home or a condo. Glenn Carter, real estate investor and owner of Condo.Capital, said that the property taxes are generally the same for a condo costing $200,000 and a single-family home at the same price.
This isn’t always the case, though, depending on where you’re located. Certain areas of a community might have higher property taxes, meaning you might pay more each year for a condo in a particularly valuable part of town than you would for a single-family home in an area where property taxes tend to be lower.
It’s important for condo owners to know that they might face a big tax increase if the condo’s developer was granted a tax break that’s scheduled to end. This is why it’s best to ask any tax questions you may have before owning a condo.
Philip Askeroth, co-founder of the Brooklyn-based online for-sale-by-owner network REALICITY, said that buyers considering condos should do their research on property taxes to make sure that what they pay isn’t scheduled to jump anytime soon.
“Do you have a good understanding of your annual property taxes?” Askeroth asks. “Building developers are often granted tax abatements that lower taxes for a predetermined time, 5, 10 or even 20 years. If the condo you are considering has a tax abatement, your taxes will gradually increase every year.”
The Bottom Line: The Costs Of Owning A Home Depends On The Property
While it’s important to consider the possible costs of a condo or even a single-family home, there are other factors that might make one type of home worth it, and ultimately the better choice for you. If you travel frequently, for example, you may find that a condo is a better fit because it’s not your responsibility to maintain it. On the other hand, if you have kids, you might realize that owning a single-family home is better for you, allowing you and your family more space or even a backyard to play in.
Whether you should own a condo is entirely up to you, but it’s important to know the pros and cons of owning one before getting started on your home buying journey. If a condo is right for you, get started online with Rocket Mortgage®.
