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by Billy Broyles

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A Condo, Townhome or House? Making the Right Decision


Most people know that we live in a relatively expensive part of the country. Rents are high, home prices are higher than in most other parts of the country, and homeowner’s insurance is higher due to our risk of hurricanes.

Growing Vertically

Here in South Florida we enjoy an almost perfect climate. We are the envy of the nation because of our beautiful beaches. The metropolitan South Florida area includes Miami, Fort Lauderdale, and West Palm Beach where world class amenities abound. Because of these wonderful attributes and other factors, there are actually more people who want to live here than our resources can accommodate. There is certainly not enough land for everyone to own a house, so in an effort to meet the housing demand, home builders have looked to build vertically.  The result is a housing market which is chocked full of condos, and townhomes, with a relatively fewer number of single-family homes when compared to most other real estate markets in the country.

Metropica, in Sunrise: Vertical Growth.

Lower Prices x Affordability

Condos and townhomes tend to be lower in price than most houses, but does a lower price equate to more affordability?  It’s like comparing apples to oranges. When looking at the affordability of housing, there are so many things to consider in addition to the price tag on the real estate listing. One must also consider the monthly payment, the amount of money required for down payment, and what a possible return on the investment might be when considering owning for years down the road.

Condos: Highest Risk to Lenders

There are valid reasons why things are the way they are in terms of houses, condos, and townhomes. Condominiums represent the highest risk to lenders when compared to the other options because so many more variables exist when evaluating condos. In order to mitigate the risk represented by condominiums, lenders use certain tools which allow them to manage their risk.

These tools, among others, are the debt to income ratio, or “DTI” as it us commonly referred to, the loan to value ratio, or “LTV”, loan level pricing adjustments, or “LLPAs”, and private mortgage insurance, or “PMI”. Condominiums tend to be the cheapest on the price spectrum however lenders place more restrictive DTI’s, LTVs, LLPA’s, and PMI requirements than they would with a house or townhome. Lenders consider several variables when evaluating the credit risk of a condominium community.

Condo in Tamarac, FL.

Take All the Variables Into Account

For instance, how well-run is the community? Has the homeowners’ association, or “HOA” adopted a budget that will allow them to remain solvent in the future? Or, are is the HOA dues so low that there will inevitably be issues with deferred maintenance in the community due to lack of funds?  Are there sufficient reserves in place to account for expenses, both those foreseen and unforeseen, down the road? Is the homeowners’ association currently involved in any litigation? Is the community heavy with rentals, and/or do single entities, such as LLCs or other types of real estate holding firms, own multiple units, giving those entities a louder voice in governing the association? All of these things affect the risk a lender assumes when it accepts a condominium as the collateral for a loan. 

As a result, in order to buy a condo, you would quite possibly be required to put down more money at the time of purchase, have better credit, and pay more for the loan in terms of rate, private mortgage insurance, and fees charged at closing. 

Townhones in the Middle of the Spectrum

Somewhere in the middle of the spectrum of price, risk, and difficulty in obtaining financing are townhomes. Townhomes differ from condominiums in that owners actually own the land underneath the townhome. In a condominium community, the owner simply owns a percentage of the community as a whole. Within townhome communities, owners are typically responsible for the interior and exterior of their units, whereas condo owners are usually only responsible for insuring and maintaining the interior of their units. 

Because the owners of townhomes have more control over their investment than do condominium owners, lenders typically treat a townhome more like a single-family house. This means it is much easier to obtain financing for townhomes because there are fewer restrictions such as LTV, DTI, PMI, etc. In addition, the monthly fees charged by the homeowners’ association, often called HOA dues, are typically less than they would be in a condominium community.

Townhomes in Boca Raton, FL.

House: My Property, My Control!

When considering a house for purchase, there is no homeowners’ association most of the time. If there is, it is typically very basic and does not encompass the broad spectrum of services you would see in condos or townhomes. Homeowners also have the most control over their property. They own the house, and all the land surrounding that house. If the roof needs to be replaced, they must replace it themselves.

Lenders see a free-standing house as representing the least amount of risk when compared to condos or townhomes. Because of this, you won’t see the restrictions on lending guidelines or northward pricing adjustments for homes. You could also expect to put down less money to purchase a house than with a condo or townhome most of the time. In short, when purchasing a house, the loan itself is typically much easier to obtain and the cost of the loan is relatively less than you would see with condos or townhomes. On the flip side, the price tag for a house is usually more.

The Right Decision is the One That Works Best For You

In conclusion, you must simply consider what will work best for you and your family in both the long term as well as the short term. Can you afford to buy a free-standing house even though the price tag is usually higher or would it be easier to find a suitable condominium in your particular price range?With so much to consider, there is certainly no wrong choice and by that same token there rarely is a perfect choice.

Utilize the resources available to you. Select an experienced full-time real estate agent with excellent reviews and an in-depth understanding of the nuances present within our local market. When your real estate agent recommends a lender, that means he or she has a proven track record of positive results with that that particular lender. Choosing a lender who can commit the time required to help you and your family understand and make the right decision about choosing a condo, townhome or house is just as important as choosing the right real estate agent. With these tools at your side when you embark upon the hunt for your family’s next home, you will undoubtedly be ready to make the most informed decision as is possible.


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