Condominiums are an individually-owned housing unit usually found in a multi-unit dwelling and sometimes are built as separate one-story buildings with no common walls in Orange County. The difference between an single family home owner and a condominium owner is that the condo owner does not own the land or common areas jointly with other owners. However, each type of owner holds sole title to their property.
Condo owners share common property jointly with other condo unit owners such as exterior hallways, stairs, roof, gym, pool, elevators, etc.) . The cost of maintenance is also shared among the owners. So, if a roof repair, exterior painting, or other necessary maintenance is necessary, all owners share the expense.
The homeowners insurance may be separate or included in the HOA. It all depends on how it is set up. Property taxes however, are each owner’s responsibility to pay on time.
Unlike a large majority of single family homes, the owner of a condo is not able to freely rent his or her unit to anyone without permission from the HOA. Putting your condo up for sale does not require HOA approval.
A Condo that doesn’t meet the guidelines of a traditional lender will have a higher interest rate than a condo that does meet underwriting guidelines. In addition, in some cases a single-family detached home may be offered a slightly lower interest rate.
• This is because lenders view condos as slightly riskier investments due to them being run by an HOA association or condo management company
• Higher rates tend to occur for condos when the lender learns the financial and ownership type ratio of the development is not considered as a “Warrantable” condo. Therefore the condo is referred to as a “Non-Warrantable” condo.
• In most cases, a condo is regarded as “warrantable” if no single person or entity has a 10% or more ownership in the project, a minimum of 51% of the units are primary residences, under 15% of the units are in default on their association dues, there isn’t any pending litigation against the homeowners association (HOA), and commercial space is not more than 25 percent of the total building square footage.
• A condo or co-op unit is considered “Non-Warrantable” if the project has yet to be completed, its developer has not turned over control of the HOA to the owners, the community allows short-term rentals, a single person or entity owns more than 10% of all units, or it’s in a project where the majority of units are rented to non-owners.
*A high number of vacancies can also negatively affect the condo’s status
• Condotels, time shares, fractional ownership properties, and other projects which require owners to join an organization, such as a golf club are considered non-warrantable units. This simply means financing options are less abundant and therefore lenders add a premium to the interest rate
• If you are in the market to purchase a condo, ask your mortgage originator or real estate agent if the development is warrantable prior to going under contract.
