If you qualify to buy a three-bedroom, two-bath condo you can probably buy a detached single family home for the same monthly expense. Many home-seekers don’t stop to think how much those homeowner’s association dues equate to in borrowing ability.
The payments on a condo or PUD (a unit in a planned unit development) include principal, interest, taxes, and homeowners dues which together total about $2,542 per month based on a sales price of $375,000 with 5 percent down and mortgage interest of 4.25% (principal and interest $1,752, property taxes $390, and homeowners dues $400).
But buying a single family home without monthly dues eliminates about $360 a month (homeowners’ dues minus property insurance which is included in dues). At 4.25% interest, that amounts to $281 a month in borrowing power which equates to about $60,000 in purchasing power, or $435,000 for a detached home.*
Homeowners dues for a condo (you own the air space of your unit and a share in the common area) typically cover maintenance of the exterior, roofs, and common area. Units in planned unit developments where you own the walls, roof, ground and a share of the common area usually cover common area maintenance and little, if any, exterior upkeep to the individual units.
So is there an advantage to buying a detached home vs. a condo or PUD with the same monthly payment? Yes, but! You may have to sacrifice on neighborhood and condition for a single family home. However, single family homes appreciate more quickly for several reasons. If there’s a low sale in the condo or PUD complex, an appraiser may need to give it heavy weight in the absence of other sales at higher prices in the same complex. That can hold condo/PUD prices back. But with a detached house, appraisers typically search a half-mile radius to find comparable sales. Condos are more subject to loan regulations than PUDs or detached homes, and for FHA, the condo complex must be FHA approved. If a complex has some major repairs that aren’t budgeted, special assessments can be levied, and those can cost thousands of dollars.
On the flip side, single family homeowners need to save money for eventual repairs which might have been covered in condo dues. Homeowner’s associations are paying someone to pay someone for gardening, pool upkeep, etc., and you can save a lot of money by doing your own home maintenance. Another consideration is personal safety. Some homeowners feel less vulnerable when surrounded by close neighbors. And they may prefer to let someone else maintain the home’s exterior and landscaping.
The choice between a condo/PUD or a detached home depends on many factors. But when house hunting, do consider both.
*These are typical three bedroom, two bath condo and detached home prices for the East Bay region of San Francisco, but usually condo to single family price ratios are similar in other areas.