Shelter is a basic necessity for all and while some people may prefer living in McMansions, others may favor condominium (AKA condo) living. While condo living can provide an instant community and reduce stress generally associated with maintaining a single family detached home, there are other factors consumers need to consider before securing a mortgage and signing on the dotted line.

What is a Condominium?

The mortgage rate origination tool Mortgage Marvel defines condominium living as "A form of real estate ownership in which each owner has title to a specific unit in a project and joint ownership in the common areas of the project." Most condo purchases allow an individual to buy a unit within a larger building complex. Condo owners can build equity in their real estate purchase, receive tax breaks if financed by a mortgage and are responsible for paying their own property taxes.

When most people think about condo living, they picture luxury accommodations, however, just because a property is a condo does not make that the case. Apartment buildings, commercial warehouses and townhouses all have the potential to be sold as condominiums and it is the financial structure of the property, not the variety of accommodations provided that help define condo properties.

When it comes to buying a condo, the process is fairly similar to buying any other home. Home shoppers will pick out their dream property, make a bid and if need be, get a mortgage to finance the purchase. Monthly payments (including property taxes if linked directly to the mortgage) are paid directly to the lender.

Unlike a traditional home purchase, condo residents will not only be responsible for the mortgage debt and taxes, but owner's will also have financial obligations in the form of homeowner association (HOA) dues. While within the condo unit, the owner is responsible for everything between their own four walls, outside of their quarters is the communal areas that all condo owners are responsible for. HOA dues generally cover the general maintenance of a property, and if bigger problems arise (IE pipes bursting, security system upgrades, roof work, etc.) an assessment may be levied to generate extra money and properly take care of the issue.

Condo Shopping Tips

No two condo buildings are identical as each property has its own board members and rules that owners must abide. It is because of these reasons, home buyers needed to properly review both the local laws of the land and people in their new community to see if personalities mesh. Teamwork, an essential component for condo living and some tips to help ensure the future success of the living arrangement include:

• Check Out Reserves: All condos should have some money in the bank for emergencies and up-keep and those funds are called replacement reserves. Home shoppers need to check the reserves to make sure there is an appropriate cushion, just in case.
• Know Your Neighbors: Condo living requires each tenant to contribute their fair share. By taking the time to investigate both the minutes from condo board meetings and checking out who is paying their dues on time, you can not only find out the overall financial health of the building, but also be easily able to find out if there are any troublemakers in the mix.
• Bylaws: Each condo has their own rules for running the operation, and some of them may not mix with your lifestyle. Within the condo bylaws individuals can unearth information pertaining to pets, the policies regarding subletting and behaviors such as quite hours and approved times to move furniture.
• Management Company: Buildings that are self managed may save money on HOA fees, but will put the additional burden of maintenance and repairs on the condo owners. Check to see if your building has a manager to handle those necessities, meet them face-to-face and go with your gut.
• Insurance Coverage: Condominiums tend to have some type of insurance plan to cover the general grounds, and potential residents of the building need to see how that coverage extends to protect their home during a time of crisis.

Condo Financing Tips

Unless a consumer has the full purchase price of the property in hand, chances are a mortgage will be part of the equation and individuals must conduct their due diligence to ensure they avoid common mortgage mistakes. Before even applying for a home loan, borrowers need to properly evaluate their financial stability and investigate their credit history, credit score, and gather pay stubs and any documentation indicating net worth or revenue streams.

Running those numbers through a mortgage qualifier calculator can help determine if buying a home makes economic sense. When working with those numbers, homebuyers need to also budget for additional costs including HOA dues, annual property taxes and any insurance (IE private mortgage insurance, homeowner's insurance, etc.). All those fees will add up and buyers need to make sure their budgets can handle the additional costs associated with homeownership.