Buying a condo is not much different than buying any other piece of property.
A condominium is an alternative to a single-family house without all the work. To many people this makes a lot of sense, especially for young marrieds and empty-nesters whose children all have left home and are on their own.
If you plan to pay cash for your new unit, you don't need much advice from me. But if, like most of us, you intend to pay a certain amount down and then try to qualify for a loan for the rest, perhaps you should consider trying to persuade the seller to lend you part of the purchase price himself.
This usually takes the form of a mortgage that is subordinate to the institutional loan. Thus, it's called a second mortgage.
If you can borrow 80 percent of the purchase price from a bank or savings and loan 10 percent from the seller, you have to come up with only 10 percent for the down payment (and be able to meet your monthly mortgage obligations and the monthly homeowners fee, as well). In today's market, however, you may be able to negotiate a higher second mortgage.
Since creative financing is the buzz-word of the year, why not try it yourself?
Do you have a vacant lot that some seller might take in trade? A boat or car that you don't need? Will the seller take an interest-only note for two or three years? (If he or she does, will you be able to come up with the funds when the note matures?)
Will the seller lease the condo to you with an option to buy?
Remember that interest paid on a loan such as one for a new condominium is a tax-deductible expense. So is the local property tax. Look at your last tax return and decide how much this will benefit you by reducing your after-tax cost of housing.
The interest dollars you pay are gone, but some of them return to you as itemized deductions on April 15.
If you now are renting and earn a substantial salary, it may be you can't afford not to buy.
Don't be naive when it comes to buying a condominium. Understand what all the costs will be before you sign on the dotted line.
People who have comparison-shopped for a condo, for example, often are surprised by the variety of maintenance fees. Some fees are postively cheap: say, $40 a month. Others may be $120 or more for roughly the same amenities. While it is true that massive landscaping and swimming pools require more maintenance labor (and thus more dollars) than rock gardens and sidewalks, there is more to a maintenance fee than meets the eye.
Is the condo newly built? The developer has every incentive to keep the monthly fee low as a sales incentive. For awhile, at least, no maintenance at all will be needed. Only operating expenses will need to be funded.
Is the condo 10 year old or more? If so, the present board of directors may have discovered that the amounts set aside earlier as reserve funds for replacement of equipment were not enough to cover today's costs.
Water heaters, roofs, pool motors and other hardware eventually wear out and have to be replaced. While early governing boards can defer funding for replacement of these items (they shouldn't, but the human tendency is to defer maintenance), eventually replacements must be paid for.
Obtain a copy of the latest operating budget from the homeowners association. This budget should show the total income, predominant owner fees and the total expenses. Look at each expense item and evaluate for yourself the adequacy of the funding.
Will $10 a month amount to enough to fix a roof or eight or 10 years?
How about utilities? Are they a large percentage of the expenditures?
Even if the monthly fee is so optimistic that you know it will have to be raised later on, this does not mean you shouldn't buy that unit if everything else is to your taste. But you should at least be aware of the potential for the future increases or special assessments.