Are You Looking at a Condo or Townhome?
Why it Makes a Difference
One of the first questions I ask when a new client contacts me about buying a Condominium or a Townhome is:
"Are you SURE you know what you're really viewing?"
Admittedly, experience has taught me to double-check the answer provided, no matter how sure they sound. History has proven, often they're wrong.
Despite appearances, the only true distinction between ownership of a Condo and Townhome is found in the legal ownership rights of the LAND upon which the building sits. An Individual owns
NO LAND in their purchase/ownership of a Condominium, only a shared portion of the COMMON LAND.
Think of it this way: If you're buying a "Unit" on a 2nd floor (or higher), and your "Building/Unit" has NO Contact with any ground, you're buying a Condominium. Yes, you do have rights to the common ground that ALL the Units in a multi-unit building share. Common ground that allows you access to your specific Unit.
On the other hand, if you're looking to buy/own what is referred to as a "Townhouse/Townhome/Villa", understand that these terms refer to a STYLE of housing. It doesn't necessarily mean you own the land under the structure.
Confused?
Here's some background info: Many developments were legally set-up and constructed as "Condominium Projects". The Builder or Realtor may use the term "Townhouse/Townhome/Villa" when they speak or within their marketing materials.
This is true even when the style appears to be a Townhouse, but in actuality is legally a Condominium. Why? The Original Subdivision Plat gives no LAND rights to the Buyers of the Units.
These types of developments are less common, but they do exist often enough to cause real confusion in the Marketplace and a bit of havoc too. With Buyers certainly. But with Realtors, Attorneys, Title Companies, and Lenders too.
Even some Appraisers struggle with the legal differences between the two types of ownership/properties. I know that for a fact from the decades I performed property appraisals.
This IS a big deal for a Buyer.
It's not just semantics. It's not the Lender giving you a hassle. You must know this difference as a Buyer seeking a Mortgage (and eventually a Seller, as well):
Loans on a Townhouse/Townhome/Villa are far easier to obtain and less costly in terms of:
- Interest Rates
- Closing Costs
As a general rule, Condominium ownership involves more rules, restrictions of property use, and potential for budget issues with the property Association that manages the day-to-day operations of the Condominium project. That's true whether it's just a 2-Unit project or a high-rise with hundreds of Units. True even with projects that are several buildings with common facilities.
In simple terms, from a Mortgage Lender's prospective: More can go wrong with a Condominium property than a Townhome property. Associations are more complex in Condo projects than in Townhouse developments.
This is a good example of the "trickle-down theory". When things go wrong in a Condominium project or Association, the Unit Owner suffers. If the Owners suffer, Lenders can suffer a loss (Foreclosure, Deed-in-Lieu of, Abandonment).
This added risk incurred by a Lender on a Condominium, is often times offset in higher interest rates or added Closing Costs in the case of a Condominium's financing (varies with Down Payment percentage, quality of Borrower's Credit, Occupancy of the Unit, etc.).
The seemingly subtle differences between the types of property ownership can have a huge impact on whether a Buyer is approved for financing or not. It also can have an impact on the Interest Rates and Closing Costs they face.
As you can tell, it's important to have expert, educated professionals assisting you when thinking of Buying (and selling) a Condominium or Townhome. It's no time to work with anything less than an expert in these types of sales or lending. With current experience.
There IS a difference between a Condominium and a Townhome. That difference will make a big difference to you as a Buyer AND an Owner ...
* Hoping to Buy a Condominium or Townhome in Chicago or the greater Chicagoland area? My 2.5 decades as a real estate appraiser, paired with my 37 years of Mortgage experience, will assist and guide you towards smart decisions and successful financing.
I can be easily found at:
Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281
Gene Mundt, Mortgage Lender, a Lender with 37 years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including: The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL.
Your Business and Referrals are Appreciated!
Great post! I like to interview my clients too. I often get a much better understanding of what they're looking for by asking a few questions. Townhomes and Condos suit people differently. Thanks for sharing.
ReplyDeleteJasmine V | Belgravia Group