Condo vs Townhouse…What’s the Difference?

Sale ContractIf you’re like many Americans you have heard of the terms “condominium” and “townhome”, but if asked to describe the difference between the two you probably would struggle for the answer.  Townhomes and condos are great property options for buyers who are not keen on all the necessary maintenance involved with owning a home.   Both condos and townhomes charge a Homeowner’s Association fee (HOA fee) to contribute to the general maintenance of common areas, which could include: snow plowing, lawn maintenance, sanitation, and more—it varies per association.  So what’s the difference?

Condominium

A condo is a home that is part of a larger structure where the resident only owns the interior.  The structure itself is similar to an apartment building, but instead of renting the living space the resident owns it.  Most often, condos are one-level living spaces within a multi-level building.  Outside maintenance and trash is typically included in the HOA fee; some complexes even include utilities and cable into the HOA fee, but you would need to confirm what exactly is included as it does vary.

Townhouse

With a townhome the resident owns the piece of property on which the home is situated.  A townhome is very similar to owning a single-family home apart from the fact that the row of homes share adjoining walls.  Owners must pay for their own utilities, but water and trash are typically included in the HOA fee.

Here’s a chart to quickly compare and contrast what was detailed above:

Condo

Townhouse

Structure

A home that is part of a larger structure, similar to an apartment   building A home that shares adjoining walls with a row of similar homes

Ownership

Resident only owns the interior

Resident owns the interior plus   the yard on which it is situated

Legal Status

Governed by specific statutes varying per state

Laws like those applicable to single family homes

Interior Typically one-level, may be on any floor

Starts on ground-level, may be multi-storied

 

How does that affect a mortgage?

There are some financing facts home buyers should know when considering either a townhouse or condominium.  Nothnagle REALTORS® partners with two local mortgage companies to bring you the best options available: Premium Mortgage and Nothnagle Home Securities.

Below is information from our loan officer affiliates from both partnering companies about the differences in terms of mortgages between condos and townhomes.

Read what our affiliate at Premium Mortgage has to say. 

A couple of things you should be aware of as a buyer when looking to purchase a condo. Under most cases a Conventional loan will work fine but if you are looking to pursue other financing options, such as FHA, USDA or VA, you will need to make sure the condo is certified for that particular loan program. There are many certifications that take place with each condo development and these can be fairly strict with each loan program so the approved list is limited. The best thing you can do is consult your licensed loan officer to confirm what properties are eligible.

As far as Town Houses and Single Family Residences are concerned you will have far less restrictions with the general loan programs available in the market today.

Mortgage Rate Chart by Premium Mortgage

 

Our affiliate at Nothnagle Home Securities explains how it affects HUD regulations and mortgage programs.

So does it really matter if a property is a condo or townhouse when it comes to mortgage financing?  Yes it does!

If you (or your future buyer) need FHA financing, a townhouse is a much safer bet right now.

The US Department of Housing and Urban Development (HUD) however, sees a big difference. They see the common ownership problem to be a big one when it comes to the current mortgage crisis. As more units have fallen into foreclosure, homeowners in the remaining units have been hit with big dues increases (since the defaulted units aren’t paying their share). This in turn leads to more defaults, liens, etc. that make a mess. Their solution? Make it harder for people to use FHA financing to buy condominiums.  However, FHA still allows you to put only 3.5% down on a condo, but the project must be a FHA-approved project.

When buying a condo with a GSE-guaranteed loan (Government Sponsored Enterprise, ie: Fannie Mae, Freddie Mac, VA, FHA) you may not be offered the best mortgage rates. In addition to employing strict guidelines on condominium projects, Fannie Mae and Freddie Mac (your “typical” conventional mortgage) impose surcharges on condominium buyers. Since they consider them to be riskier loans, mortgages on condos may come with a pricing adjustment unless you can afford to put 25% down on your purchase.

 

Click here to for more information on both of these mortgage companies or to request a mortgage pre-qualification.

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