Real Estate
August 14, 2020
link to facebook link to twitter

Should you buy a single home or condo?

By: Scott Sheldon
July 3, 2020

When it comes to purchasing a home, especially a first home, what you decide to purchase can affect your affordability. Here’s what you might want to think about when you’re deciding to purchase a condo versus a single-family house…

When you purchase a condo your payment is comprised of principal, interest, taxes and insurance and a homeowner’s association payment. A homeowner’s association payment can be anywhere from as little as $200 a month to as much as $300 to $400 a month which is perhaps more common. Planning for an extra $300 to $400 a month in your monthly mortgage payment is something that you’ll have to consider when deciding whether or not to make an offer to purchase a condominium unit.

Here’s where the rubber meets the road. $300 to $400 a month on a mortgage payment might not seem like much, but from a cash flow perspective it can completely change the dynamic of what type of property you’re desiring to purchase. That type of monthly payment can be best supported by upwards of $50k to $70k in borrowing power.

So, for example, let us say you are pre-approved for a $400,000 condo and the homeowner’s association payment is $450 per month. You would conceivably be able to buy a single-family home for $475k instead. An $85,000 swing in borrowing power can shape your entire financial future; including the neighborhood, the location, the list goes on.

The other factor you need to take into consideration in your decision-making process is the down payment. Most condo support doing 5 percent down on a conventional loan. Five percent down on a conventional loan for a $400,000 purchase price is $20,000; five percent down on a $475,000 house single-family is $23,000; if cash to close is difficult you might want to think about flipping the loan from conventional on a condo to going FHA for a single-family house as that will afford you the same amount of cash to close and can support the same monthly payment. Something to think about when you are deciding to get pre-approved to purchase a home.

 

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.