Condo Finances
- Adam Garrett
- Sep 19, 2023
- 7 min read
Updated: Nov 8
Above: image from a former condo listing of Adam's - image by Adam
In this article, I wanted to go over some of the differences between condos and other houses, especially in terms of finances, & within finances, especially in terms of lending differences.
Differences Outside the Scope of Lending Differences
- Lower Rate of Appreciation
Generally speaking, appreciation (by %) go from highest to lowest in the following order:
Single Family Detached Homes
Townhouses that are not Condos
Condos
A hierarchy of appreciation isn't unique to these types of homes. I mention a hierarchy of modular, manufactured, and mobile homes (in that order) for appreciation as well in the "...Main Differences..." section of my article on the subject.
Among condos, some factors can negatively impact appreciation:
High HOA/Condo fees
Condos in flood zones (x500 and AE) that are in hurricane evacuation zones, especially those zones that would be first to evacuate (Zone A in Virginia) & AE zones (which require flood insurance for properties with a mortgage). That's true even if some condos are in the zone, while a particular property you are interested in purchasing is not yet in the same association.
Associations that aren't approved for any 1 or all of the following loan types:
VA loans
FHA loans
Freddie Mac & Fannie Mae conventional loans
Why does appreciation matter?
One of the top benefits of a house purchase is appreciation. Appreciation is part of the reason why there is an almost 40x gap between the median net worth of renters and homeowners. Appreciation matters more for owner-occupants than for investors due to the asset protections involved in real estate you live in vs those that others live in. Also, for those using a mortgage to purchase, financed debt at lower rates than most personal loans with certain government protections (i.e. on foreclosure) has a higher impact for many than purchasing investments in cash. Conversely, financed investments outside of real estate are much riskier.
I personally wouldn't advise most to consider purchasing a condo due to the appreciation factor (& often but not always the fees) unless one of the following is true:
a. You truly can't afford a townhouse or single-family house
b. You are not in a good position (i.e., due to cognitive disability) to personally take care of or hire out exterior maintenance, even if the cost of that hiring would be lower than an HOA or condo fee & you can't afford a townhouse that would provide the maintenance you need. I pay more for my non-condo townhouse than I do for the person who does lawncare at my rental property on a .29 acre lot of primarily grass, which is the vast majority of the exterior maintenance expenses that are done there, where, as of 11/8/25, I pay $65 once every 2 weeks from Spring to Fall. When considering hiring someone out vs doing it DIY, it's critical to consider the value of your time (i.e. $--/hr even if you are salaried & need to do some math to get it) in your work vs the time it would take you to complete the task (in the same $__/hr terms). Also, keep in mind that money saved by doing it DIY is worth effectively more than the same amount you'd pay to someone else as long as you're paying taxes on your income.
c. There are amenities there that you will greatly take advantage of where the cost savings/convenience could give an edge (i.e. some condos have certain utilities covered as part of the shared condo fee rather than being billed to the individuals).
d. You have fallen in love with a particular community (i.e. due to family, friends, &/or amenities there) and are willing to sacrifice some appreciation and other financial benefits to be in that community.
While I own a non-condo townhouse, I would be more hesitant to purchase another townhouse due to the impact on appreciation that I hadn't researched enough prior to that purchase.
+ Lower Purchase Price on Resale
Because condos don't appreciate as quickly as townhomes, you'll generally be able to get them at resale at a lower cost than a typical townhome, especially if impacted by those factors reducing appreciation for condos.
+/- More Rules
Often with condos, you'll face more restrictions than with detached single-family homes, and to a lesser degree, townhomes. If condos don't abide by the rules, the appreciation will be lower, such as there not being more than 50% of the units being rented out.
If you're coming from a situation where you were bothered by others in a way where you wish there could be rules that would be enforced, you may like this approach. If you're a Libertarian or are looking to operate a business out of your house or use your property to do a short-term rental, you will probably not like a higher amount of rules to follow.
+/- Higher Monthly Fees, But More Covered
Typically the monthly fees will be higher on condos than on single-family detached homes, and to a lesser degree, townhomes. Did you know that some townhomes have no monthly fee? You'll be hard-pressed to find that from a condo association. The reasons why are multi-faceted, but one of the biggest differences is that more often with condos the association takes care of the maintenance of the exterior of the condo structure & grounds, while with townhomes, this maintenance is more often (but not always) done by the owners.
If you want something where it's easier to not have to hire someone out for work and wouldn't be doing much if any maintenance yourself (i.e. an investor with a large portfolio scattered across many areas), it may take less time from you. If you're an owner with a large family and would get excellent use out of a water bill that is covered by the association, it also may work out well for you. If you're an owner-occupant who is conservative with utilities and do a lot of your own maintenance, you'd probably be better off handling these items yourself, not in an association that covers them.
Lending Differences for Most Loans:
+/- Higher Interest Rates When Putting <25% Down
Unless putting 25% down or more, you'll likely be looking at a higher interest rate with a condo vs a comparable townhome. That means less competition for buyers who have the capital for 25% or more down (decreasing initial costs & appreciation) or higher costs for those who don't.
“On a conventional mortgage backed by Fannie Mae, the rate on a condo will usually run about one-eighth to one-quarter of a percent (0.125-0.250 percentage points) higher than what you'd pay on a single-family home. That's because Fannie Mae charges lenders an up-front fee of 0.75 percent of the loan amount on all condo mortgages with less than 25 percent down. Lenders usually cover this by boosting the mortgage rate to compensate. You can avoid the higher rate by simply paying the 0.75 percent up front, or by making a down payment of 25 percent of the purchase price or more.”
+/- Some Lenders Can't Do Condos
You might be surprised to learn that some lenders can't even do condos. Among those lenders that can do condos, there are many cases where a lender can't do a loan for at least 1 loan type depending on the association, such as associations that are not warrantable for conforming conventional loans, VA-approved, or FHA-approved. These approvals are based on factors like the % of owner occupancy, condo association financial strength, & more. While reducing your options if using a loan & reducing appreciation, it also means less competition & lower starting costs on resale. NACA is able to do condos, but only under certain conditions (See "What property types are eligible..." here).
Lending Differences for VA & FHA Loans:
Check to see if it’s approved for VA or FHA
Lending Differences for Conventional Loans:
Higher Down Payment Requirement In Some Cases, Depending On Lender, With Some No Down Payment Loans Still Available
Even lenders with 0% down conventional loans may require significantly higher down payments for condos. In the example of Garrett Mortgage, which offers a 0% down loan option for true first-time home buyers, they charge a minimum of 10% down for condos typically, though sometimes exceptions may be made for lower amounts. That said, a loan broker I work with who is unaffiliated to GRP offers as low as 3% down conventional condo loans. NACA, which is a non-profit conventional product, is an example of a conventional 0% down condo loan.
How to Check if an Association is Approved?
Option 1 - check with the association
Option 2 - check with a lender
Option 3 - if it’s approved for VA or FHA (check here), it’s likely warrantable, but in some cases, it won't be VA or FHA approved but will still be warrantable for Fannie Mae & Freddie Mac conventional loans
Option 4 - check to see recent sales in the same association
Option 2:
CPM has a list of non-warrantable complexes.
According to https://singlefamily.fanniemae.com/media/30511/display
“Q2. NEW How can I gain access to CPM if I am an approved seller/servicer? Approved Fannie Mae Seller/Servicers already registered for CPM can access the application through the link on the Fannie Mae portal. Link here: CPM Launch App. (also here)
Q3. NEW How do I register for access to CPM if I am not an approved Fannie Mae Seller/Servicer? We anticipate correspondent originators who are not approved Seller/Servicers will be able to request access by May 1, 2023. These third-party originators will receive separate communication on how to access CPM through Technology Manager.”
Ineligible characteristics for condos with Fannie Mae
Source: https://singlefamily.fanniemae.com/originating-underwriting/condo-co-op-and-pud-eligibility
Ineligible characteristics for condos with Freddie Mac
I've read elsewhere (1, 2) that at least half of the units need to be owner-occupied.
Conventional Loans Available for Non-Warrantable Associations
If not warrantable, there are likely still some options, though down payment requirements and interest amounts will typically be higher & a significantly lower amount of lenders will be able to provide a loan.
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