By Damon Poeter
If you're in the market to buy your own place — or hope to be — affordability and location are probably your top concerns. Of course, there are other factors that affect your quality of life and the quality of the investment you’re considering. Commutes, school ratings and access to the shops and restaurants you prefer all matter when you’re settling down. But consider this, too: the type of housing you choose — house or condo — might influence how much of your housing wish list you actually get.
“Where you want to live is really a complex decision. It’s quite a lot deeper than just a financial decision. It’s one of the biggest decisions you’ll make in your life and once you’ve made it, it’s not an easy one to change,” says Matthew Angel, a USAA advice director and CERTIFIED FINANCIAL PLANNER™.
Condos = fees. All condos are administered by some form of condominium association that collects fees and manages the building or community where the condo is located. Some houses are located in neighborhoods managed by homeowner associations (HOAs), which perform a similar function.
When you calculate the monthly and annual cost of paying the mortgage on a new condo compared to a mortgage on a non-HOA house, you should mentally add in those condo association fees as part of your mortgage, Angel says.
For example, if you’re looking at a condo that would carry a $750 monthly mortgage and $250 in monthly condo association fees, it’s useful to think of your total payment as $1,000 a month. You might also be looking at houses where the monthly mortgage would be higher, say $850 or $900, but without any association fees. The point of doing this is so you don’t trick yourself into thinking that a lower monthly mortgage on a condo is necessarily a more affordable option than a higher monthly mortgage on a house.
To have an accurate picture of association fees and monthly costs, “You should have a trusted real estate or banking agent who can help you navigate these issues,” Angel says.
Return on Investment. Naturally, condo owners, like house owners in a HOA, get things in return for their association fees. These can include amenities such as access to picnic areas, community clubhouses and pools. When calculating the real cost of a condo versus a house, also consider services (like trash removal), repairs and maintenance covered by the condo association that you would have to pay for yourself if you owned a house, Angel says.
Insurance coverage. A portion of your condo association fees might also go towards paying for insurance coverage for your unit or insuring the building itself against damage, loss and liability. This master policy administered by the condo association typically functions in part like the homeowners insurance you would take out on a house, so you can also factor that into your price comparisons between condos and houses.
Just be careful to read a condo’s master insurance policy – it typically won’t cover damage to or the loss of your personal belongings, appliances, electronics, furniture and other items kept in your condo unit. If you want that property covered, you might have to buy a separate, individual condo insurance policy and possibly flood insurance as well. What’s more, you might not have a choice to rebuild, if your condo building is destroyed in a fire or natural disaster, Angel says.
“A condo policy is different than a homeowners policy. The condo association typically has a master policy that covers the building and liability in common areas, but control over what happens if the building is damaged or lost might not be in your hands.
“Whether you want to rebuild or not, you could be outvoted by the other members of the association,” he says.
Matthew Angel serves as an advice director at USAA, focusing on the personal finance tenets of short-term saving and home advice. Matthew holds professional credentials including a CERTIFIED FINANCIAL PLANNER™ designation, AAMS®, and a Master of Business Administration degree from the University of Texas at San Antonio. Matthew’s history at USAA includes seven years serving members as a financial planner and leading teams of financial professionals to help members achieve financial security. Outside of work, Matthew enjoys hunting and riding motorcycles and is a proud husband and father to four kids.
Homeowners insurance for your condo is provided by United Services Automobile Association, USAA Casualty Insurance Company, USAA General Indemnity Company, and Garrison Property and Casualty Insurance Company, San Antonio, TX. Each company has sole financial responsibility for its own products.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
The information contained is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional advice before acting on any information you may have found in this article. This article in no way attempts to provide financial advice that relates to all personal circumstances.