Nearly 9 out of 10 people who live in condos and homeowners associations are happy with their communities.

In a hot real estate market like this one, it’s easy to overlook the possibility of condo living. You can also spend less money because you’re not competing with a dozen other offers for a single-family home.

Many of those homes went above the asking price, which could turn into an underwater mortgage when the market cools off.

If you want a home-ownership option that retains its value, consider buying a condo.

How much money do you need to buy a condo? Read on as we dissect the costs involved to buy a condo.

Down Payment Terms

You know that if you’re going to finance the condo purchase, you have to put a percentage down. How much varies by location and your loan terms.

A conventional loan from a bank will require between 10{5ab75762cf707683d7af2475431dd95a23fbc9cf5cb8a45517116f350cf35bde} to 20{5ab75762cf707683d7af2475431dd95a23fbc9cf5cb8a45517116f350cf35bde} down. You may qualify for an FHA loan, but the condo has to be an FHA-approved condo.

An FHA loan requires 3.5{5ab75762cf707683d7af2475431dd95a23fbc9cf5cb8a45517116f350cf35bde} to 10{5ab75762cf707683d7af2475431dd95a23fbc9cf5cb8a45517116f350cf35bde} down, depending on your credit score and income.  

The condo association has a say in how much you put down. The reason is that they don’t want investors to come in for a short sale.

That affects the entire community, so they put rules in place to protect the property values and quality of the community.

Inspection

A contingency of the sales contract is the inspection of the condo. You’ll pay about $500 for the inspection, but it protects you from buying a condo that has a lot of issues.

The condo inspection checks the interior of the unit plus appliances. Make sure the inspection covers common areas and structural systems, such as electric, plumbing, security, garage, elevators, and hallways.

Closing Costs

Closing costs get forgotten about because buyers are so focused on coming up with the down payment. These fees get paid at closing, just before you take ownership of the property and get your keys.

Lenders charge fees to originate and underwrite the loan. Expect a small fee to pull your credit report.

You may choose to pay points, which is a larger payment towards the mortgage in exchange for a lower interest rate.

Banks require that you get an appraisal on the value of the condo. This gets rolled into your closing costs, but you can pay for the appraisal in advance. Expect to pay about $500 for this.

Buyers have to pay 6-12 months of property taxes at closing. The final cost depends on your location and the property tax rate.

If you’re buying a condo, expect to pay between 3{5ab75762cf707683d7af2475431dd95a23fbc9cf5cb8a45517116f350cf35bde} – 6{5ab75762cf707683d7af2475431dd95a23fbc9cf5cb8a45517116f350cf35bde} of the condo price in closing costs.

Condo Fees

The homeowner’s association may have the right to approve the sale. Some condo communities are exclusive, so board members interview prospective buyers.

You’ll pay a fee to have this interview. If accepted, you’ll get asked to pay a few months of HOA dues in advance.

Low Debt-to-Income Ratio

Do you have student loans or outstanding credit card debt? If your outstanding debts make up more than 25{5ab75762cf707683d7af2475431dd95a23fbc9cf5cb8a45517116f350cf35bde} of your income, you’ll have trouble getting approved for a condo loan.

You’ll need to spend money to bring down your debt first. That gives you a better chance of approval with a good interest rate.

Cash Reserves

Lenders want to know that you’ll be able to make your payments if something happens that affects your financial situation.

They like to see cash reserves or assets that can easily get converted into cash. Treasury bills, savings accounts, and money market accounts are examples of cash reserves.

How much you need depends on the loan amount, your credit history, and the type of loan.

Are You Ready for Condo Living?

Now that you understand how much you need to buy a condo, you might second-guess if it’s worth it.

Is buying a condo a good investment? Yes, whether you live in the condo as your main residence or decide to rent it down the road.

Condo values do increase over time. You’ll build equity in the condo, which gives you financial leverage. It’s much better than paying rent every month without building equity.

There are pros and cons of buying a condo. You’re living in a community, so you don’t have control over the exterior of your home. If you live in a building, you have to be careful not to make too much noise when entertaining.

On the upside, condos require very little maintenance. You have to take care of the appliances and interior space. You don’t have to do yard work or anything strenuous.

Finding the Perfect Condo

What makes a great condo to purchase? The location is the top priority. See if it’s walkable and in a safe neighborhood.

If it’s in an up-and-coming neighborhood, that’s great news. Your property values will increase as the area grows.

Check out the amenities of the property. Like the condos linked here, you want a condo close to schools, public transportation, and entertainment.

Find out what the HOA’s rules are. Make sure they fit with your plans for the condo. They might ban renting units or pets.

Ask what the HOA fees are and what the expectations of owners are. It makes a big difference to know these things in advance.

How Much Money Do You Need to Buy a Condo?

Buying a condo in this market is a great choice. How much money do you need to buy a condo? It depends on a number of factors, but you need to take into account the down payment, closing costs, and inspection and appraisal fees.

Start planning now and lower your debt-to-income ratio for the best loan offers.

For more helpful real estate tips, check out the Real Estate section of the blog.