Financing Your Condo, Co-Op, or Townhouse

Financing Your Condo, Co-Op, or Townhouse

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by David Reed

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You've been dreaming of a place to call home, and acquiring a condo, co-op, or townhouse seems like an ideal solution. You might think that buying one of these properties is less complicated than buying a house, but the reality is that finding financing can be much more challenging than you can imagine. These loans come with their own set of terms, and are often so

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You've been dreaming of a place to call home, and acquiring a condo, co-op, or townhouse seems like an ideal solution. You might think that buying one of these properties is less complicated than buying a house, but the reality is that finding financing can be much more challenging than you can imagine. These loans come with their own set of terms, and are often so complex that even the most knowledgeable loan officers don't understand them. If you're a first-time buyer, there are a host of issues that can blindside you, making paying for your dream home seem daunting. And if your potential purchase doesn't meet your lender's stringent guidelines, then you'll pay a higher interest rate, perhaps put more money down ... or not get financing at all.

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 you crucial advice, including information on developer financing, specialty loans, refinance loans, ways to streamline the approval process, appraisals, and closing costs. This easy-to-understand guidebook explains:

the key differences between condos, co-ops, and townhouses

how to find the right type of property for you

the rules governing loans for condos, co-ops, and townhouses

how to evaluate which loan type is best for you and lock in the lowest rate

why the percentage of owner-occupied units is important

what to look for when buying from a developer

how to benefit from government programs for condos and townhouses

and much more

Filled with sample monthly payment schedules and an invaluable glossary of terms, this book will helpyou find the home of your dreams, at a price you can afford.

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Editorial Reviews

From the Publisher

“…offers valuable information for any real estate investor on dealing with agents, mortgages of all types, refinancing and closing costs.” -- Associated Press

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Chapter 1

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

-- Condotels

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.

Condominium Conversions

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.

Common Areas

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.

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