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Condos & Townhomes, What’s Difference and How Do I Buy One?

Let’s start with the basics. The term townhome refers to a style of construction and not necessarily a type of ownership or management. A typical townhome will share at least one common wall with its’ neighbors and the homeowner almost always owns the ground it’s built on. For that reason, townhomes often come with additional features such as an attached garage and/or adjacent patio area.

When buying a condominium, you’re simply buying “air-space”. That is, fixtures such as the parking areas, the structure itself (walls, roof, etc.) and in many cases the HVAC system are owned in common by the individual property owners. As the owner of a condo you’re only responsible for repair and maintenance of the interior of the property.

Assuming it’s a Planned Unit Development or PUD, both property types will be classified as a Common Interest Community (CIC) by the state of Nevada. The community will be governed by a Homeowner Association (HOA) and there will be recurring dues for insurance and maintenance of the common areas. The amount of the recurring fee is directly related to the assets held in common. A community offering amenities such as a pool, clubhouse and security gates will certainly charge a higher fee than associations which simply share an insurance premium and some landscape maintenance. Just to recap, if you’re buying a condo in a CIC that’s part of a PUD, it is possible that the HOA will maintain the HVAC. Wow! Are you going to sound smart at your next dinner party or what?

Condos and townhomes have a reputation for being difficult to finance. In years past, buyers considering communities with an owner occupancy ratio under 50% had very few financing options although this has improved recently. For example, FannieMae currently has a 3% down payment program available regardless of the owner occupancy ratio. At this moment, FHA buyers are limited to only six qualified communities in our area. However, FHA does plan to relax their regulations this October allowing for “Spot Approval”. Take note that the owner occupancy must be over 50% to qualify for FHA’s spot approval program. There’s good news for VA buyers as they will currently find over 40 approved communities to choose from in Washoe County. Of course, you’ll need to work with a lender to learn which loan program works best for you. I can help if you’d like a referral to a seasoned, local loan officer.

Another challenge some confront when buying a condo or townhome relates to litigation. An association involved in a legal dispute renders its’ community virtually unfinanceable until that dispute is resolved. You’ll often find the sellers in the dark on this topic, ask them to check in with the community manager to verify before spending money on inspections and appraisal.

One final tip, when purchasing a condo or townhome request to review and approve of the minutes from the past three HOA meetings. Nevada does not require that these docs be provided to the buyer but it’s a great way to gain some insight on the people that run the show.

Financing info courtesy of Lisa Fleck @ OnQ Financial, thank you

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