A condo housing loan refers to the process of a mortgage lender providing a long-term loan to a buyer using the sale price of a condominium to collateralize the loan. Condo housing loans are not always loans, but can also be an agreement in which borrowers have an option to purchase a unit at a fixed price, hence they become owner-occupants.
This is different from traditional mortgages because condo housing loan require more accountability and it is less flexible given that ownership and title transfer upon close of escrow sale rather than when all payments are completed.
The following are the benefits of a condo housing loan;
1) Separate property
Every condo unit includes its own living area and shared common facilities are owned by the entire association. Because of this, an individual can still have ownership of a building but not be accountable for the common expenses incurred by it.
2) Tax benefits
Condominiums provide property tax assessment reductions and exemptions as compared to single-family homes. This is because condo associations are treated as non-profit organizations.
3) Easier to sell
Condo units can be sold without any third party involved. You only need to go through a solicitor’s office, hence it is easier for the condo owner to sell or purchase a condo unit. This makes them more liquid.
4) No mortgage co-signer
A condo housing loan does not require a lending institution to provide a guarantor for the borrower, hence there is no need for a co-signer.
5) Easier to refinance
Condo units can be refinanced to lower interest rates which help in meeting credit obligations since most of the time the debt service will not exceed the monthly condo fees paid by borrowers.
6) Flexible terms
This is one of the reasons why many first-time homebuyers prefer to buy, instead of rent. One can personalize their condo unit into their own style, hence the interest rate monthly payment is more flexible.
7) Interest rates are lower
This is the same with any other loan if you have a good credit score then interest rates are low, some condo financing loans offer lower interest rates compared to other financial institutions like banks.
8) A More personal choice:
Since most of the time there is no guarantee from outside parties with Condo finance, hence lenders give personal attention to borrowers so that they could feel more comfortable about their decision.
The following are disadvantages of condo housing loan;
1) Lenders are reluctant to lend to individuals with short credit histories or those who have been turned down in the past
As mentioned above, since condo units require personal attention and there is no guarantee from outside parties, lenders are loath to provide credit to many people who they consider sub-standard or high-risk borrowers. This is because this type of loan is riskier than others.
2) Condominium properties are usually more expensive
Condo financing loans are usually expensive since they have higher rates and fees simply because condo units cost more compared to houses.
3) Condominiums do not always appreciate in value as expected
When purchasing a condo unit, the potential buyers think that it would appreciate in value just like your house. This is not true. Condo prices and values are subject to change depending on many factors such as location, size, etc. Condo buyers might also go wrong because not all condos appreciate in value.
4) Fewer tax deductions
Condo unit owners cannot deduct their mortgage interest from their federal income taxes since they are treated as personal property. In addition, condo associations are not qualified for the property tax deductions that can be claimed by single-family homes.
A condo housing loan is the preferred choice of many first-time homebuyers since it offers them a lot of benefits in terms of lifestyle and personal satisfaction with less risk. They are able to purchase a condo unit using their savings and personal funds.
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