Adventures in House Hunting Part 2

Money, Real Estate / Thursday, December 27th, 2018

Growing up, I always thought a condo would be a good fit for me. I’m not the type of person that likes mowing the lawn or doing basic exterior maintenance, so I was definitely drawn to condos.

However, my recent house hunting endeavor changed my opinion on condos completely.

Now, I’m firmly in the camp that condos suck.

The most obvious downside to condos is the HOA fee, which is out of your control. At the condo my husband and I almost bought, the HOA fee was $250 a month and covered the pool, basic exterior maintenance, trash, water and sewer, and some insurance. I was hesitant about the HOA fees because there is only one direction they will go over the course of our ownership–up. And to be honest, I don’t want to pay for a pool that I won’t use and I would rather pay my own water and trash bill. The only benefit I see with the HOA is the contract with exterior landscapers. That’s actually something I would pay for. However, I want the ability to change landscapers if one starts charging too much. This flexibility to change vendors isn’t there when you’re reporting to an HOA.

The second downside, and perhaps the biggest negative, is the fact that banks will charge higher mortgage rates for a condo. This surprised me. Our mortgage banker was explaining that after the housing crisis, banks demanded higher rates to underwrite a condo. I didn’t believe him, so I did a quick google search and it turns out, he’s right.

But condos typically come with higher mortgage rates and HOA dues, which should be factored into your side-by-side analysis. … Additionally, many mortgage lenders charge a 0.75% mortgage rate pricing adjustment for a condo once the loan-to-value ratio exceeds 75 percent.


The bank wanted to charge us a 5.25% interest rate on a 30-year loan. Had the property been a single family house, we would have gotten a 4.75% rate. The difference between those interest rates meant we would have to pay $40 more per month as a penalty for choosing a condo. Between the higher interest and the HOA fees, we were looking at ~$300/month for the “privilege” of owning a condo. Um, no thanks.

It’s not unusual for banks to insist on a 25% down payment on a condo. Our banker offered us a slightly lower interest rate if we were willing to put 25% down on the condo. I wasn’t comfortable with that since I still wanted to have a cash cushion after the purchase.

At the end of the day, I’m glad the seller rejected our offer. It gave us a free “get out of jail” card and helped us walk away from a condo after learning the true costs of condo ownership. Condos make sense in large cities like San Francisco and Boston where land is at a premium. But we don’t live in one of those cities and there’s plenty of space here. With that extra $300 per month, we could essentially afford a slightly more expensive single family house. We might increase our budget by $50k and keep an eye out on some single family homes.