Is There a Difference?
Q. A friend of mine told me I should look at condos and townhouses instead of single-family homes, because they’re more affordable in my area. What’s the difference between a townhouse and a two-story condo?
A. Finding an affordable home is challenging in many areas, so it’s always a good idea to look at homes of different sizes and in different locations as well as the various types—including townhomes and condominiums. When you consider affordability, though, you should look at more than the price of the home, your estimated principal and the interest payments. You should also get an estimate of property taxes and homeowner’s insurance for different homes, so you can compare the full amount of your housing payment.
The difference between a townhouse and a condo (of any size) is in the form of ownership. In a condominium, the homeowners own the inside of their home—but the exterior, the land and the common areas are owned by an association.
A condo can look like an apartment, but it can also look like an attached one-story villa or a multi-level townhouse. In some areas, townhome-style condos are popular, because they offer the owners the feel of living in a townhouse without the responsibility of the exterior maintenance.
Many first-time buyers don’t think about the additional cost of homeowner association (HOA) dues or condominium association fees, which pay for communal maintenance and services. While those HOA or condo fees won’t be part of your monthly payment to a mortgage company, the fees are typically paid monthly, so you need to budget for that expense when you buy. The fees will also be part of your debt-to-income ratio when you qualify for a loan.
If you purchase a townhouse in the traditional way, you’ll typically be part of an HOA that will take care of maintenance of the common areas in the community, trash pick-up and snow removal as well as have insurance for the common areas. In some HOAs, some landscaping is covered for the individual homes, too.
In those cases, you own the land the townhome sits on and are responsible for all interior and exterior maintenance. In other words, if the home needs a new roof or trim repaired, you’ll need to take care of it and pay for it—but if the driveway into the community needs repaving, that’s the association’s job.
Condominium association dues pay for higher levels of insurance for the community, because things like the roof, an elevator (if there is one), exterior walls, walkways and the land itself are owned by the association. Condo owners typically pay lower homeowners’ insurance rates because they’re paying only for the inside of their home and their personal possessions.
In addition, many condos include amenities such as a gym or a swimming pool that are paid for with your dues, so you could end up saving money by eliminating your gym membership.
Whether you prefer a townhouse or a two-story condo, you should compare the entire cost of buying, including association fees and insurance premiums, before you decide which is best for you.
Courtesy of Michele Lerner, author of “HOMEBUYING: Tough Times, First Time, Any Time