questions: condos vs. coops vs. house-buying

In My Humble Opinion
1

Many of my friend have been taking the “big plunge” by buying houses/condos, and I’m feeling as though I ought to join them. However, I know next to nothing about personal finance, and I have many questions.

How do you know how much you can afford to spend? Who are you supposed to talk to in order to figure this out----someone at your bank, or a realtor, or some kind of lending agent?

What’s the difference between a condo and a cooperative? I’ve noticed that coops advertise some sort of coop fee–is that an extra monthly fee on top of whatever you pay to buy the place? And is it true that condos will turn you down if they feel you don’t fit into their community? One person I know lives in a coop that’s turning into a condo and says it will be more expensive that way—how come?

What fees are generally involved in the whole process? I know you have to put some money down, and I presume if there’s a realtor or someone you have to pay them too. What else?

2

In a condo, you own the unit you live in, and pay a regular maintenace fee for upkeep of the common areas. In a co-op, as I understand it, you own a share of the building itself, and you also pay regular maintenace fees for upkeep. Whether one arrangement is more expensive than the other depends on how the agreement is set up, local laws and taxes, etc.

The Motley Fool has great article on how to figure out how much you can afford to spend on a home.

Your biggest expense by far will be the down payment for your loan. This will be at least 20%. Anyone who tries to sell you on a mortgage with less than 20% down is going to be a shady character. Try to put more than 20% down if you can; the more you put in the down payment, the less interest you’ll pay later on. (Some people think they must put 20% down, and therefore buy a more expensive place than they need. If you find a place you likee and you can afford to put 30% down, then do that!)

If you’re buying a condo or co-op or house in an HOA, make sure you get a copy of all the regulations and fees and talk to a few people in the neighborhood to get a feel for the place before making any decisions.

3

See, articles like that terrify me even more. It seems amazing to me that anyone would have as much as $15,000 dollars just lying around in the bank. How in God’s name do you come up with that much? And they spawn more questions than they answer—like, what’s a HOA? What does it mean to refinance your mortgage, and why would you want to do it?

I need something like the Dick and Jane approach to housing options: Here is your money. Here is how you use your money to get a place where you would want to live.

4

Owning your own home generates money in itself; most people do have $15K or $20K “lying around” as equity in their current house.

Of course, that doesn’t help when you’re buying your first house. I disagree with friedo’s assertion to never buy a home without having 20% to put down on it. Certainly, it’s great if you do have 20%, but don’t let not having it make you not buy a house. A house is a great investment; buying one young makes a lot of sense.

Moneywise, you will need some money to put as a downpayment, and some for paying the closing costs. In most places in the US, the seller pays the real estate agent, not the buyer, so you won’t need to worry about paying your realtor. You will, however, be expected to come up with closing costs in the tune of $3K-$6K or more, depending on how much the price of the property.

Stop thinking of your house as some big expense. It’s an investment, and is almost guaranteed to generate money for you. Home appreciate in value - how much depends on where you live. That’s why it’s not particularly scary to buy a house. As long as you can manage to pay the mortgage each month and do some really basic maintenance, it’s almost impossible to lose money on a house.

The 20% downpayment is a guideline. If you pay less than 20% down, your mortgage company may require you to buy “mortgage insurance.” Basically that means that you will be paying another $50-$100/month or so. Not the greatest thing in the world, but it’s not totally unreasonable either. Chances are after living in the house for a year or two, the home will have appreciated in value enough that you will magically have the 20% down on it, and can get rid of the mortgage insurance.

If I were you, I’d call a realtor. Get recomendations from your friends. They’ve worked with lots of people in your situation before, and they’ll show you the guidelines. Talk to a few realtors and find one you really like - you don’t have to go with the first one you call, and certainly don’t sign anything until you interview a few of them.

Buying a house isn’t really all that scary at all; just take some time and education yourself.

Oh yeah, HOA = Homeowner’s Association. Basically just a group of people who live in a neighborhood who set rules like “You can’t paint your house flourescent pink” and “Please don’t park junkers on your lawn.”

5

I got a loan with 10% down on a condo with no shadiness (my loans are currently with Countrywide/Bankone). Depends on your area, I suppose, but in a city where a 1br condo is 150 - 300k, more mortgagors might be willing to extend non-traditional loans. You can do as little as three or zero percent down. However, if you have less than 20% down you will either have to pay extra for private mortgage insurance or get a “piggy-back” loan to make up the 20% at a higher rate.

Co-ops generally have more restrictive rules for getting in than condos, IME. Anyone you sell to must be approved by the co-op, and they seem to be pretty picky. Condos require approval but it’s more like a formality. It is not uncommon to see 50% or more required down in co-ops. Condos are like buying a apartment plus a monthly maintenence fee for heat/common areas/etc.

I suggest picking up “Homebuying for Dummies”. Full of good stuff.

6

I’m 48, on my second house, and from a purely financial perspective, based on friends’ and acquaintenances’ experiences, you will do best if you buy when you’re as young as possible. Mind you, this is PURELY from a financial perspective. For most areas in the country, real estate appreciates at an enormous rate. If you buy young, even if it’s only a very small condo, you willl be helping yourself in the long run, because when you do accumulate enough money to buy something more expansive/expensive, you will have the initial condo to build upon. So you do best to pay as much as you can into whatever you can afford to purchase.

There could very very excellent reasons for NOT following this advice… this is purely financial!

7

That is completely untrue. There are a huge number of loans for which you don’t have to put 20% down – not even 10% or 5% . There are loans where you can finance up to 103% of the loan and they are completely legitimate and have competitive rates and terms. Very few people, especially first-time homebuyers, put down 20% anymore.

You also don’t need to pay PMI if you are putting less than 20% down. You can get an 80% first mortgage and a 10% or 15% second mortgage (the second will be at a higher interest rate) and thus avoid PMI.

Re co-op vs. condo, I’ve heard that it’s a lot harder to get a loan for a co-op and they usually require at leats 20% if not more down. I think that’s because you don’t own the unit in a co-op: you own shares and those shares correspond to the value of your unit, but you don’t actually own the unit itself. Not sure though exactly how it works.

8

Owning a co-op is owning shares in a company that actually owns the building. The price is lower, but the monthly maintenance is very, very high. And they are harder to sell and finance.

Condos are owning the apartment. Townhouses are usually owning an individual house in a development, but that line is very blurry–sometimes they are multi-floored attached units. Townhouses are priced pretty close to actually houses, the only advantage being that you pay maintenance and they make repairs and do the yard work.

Start by talking to a REALTOR, who can usually refer you to a mortgage rep and a real estate attorney. The rep will run your credit and tell you the amount of money you qualify for and how much to put down. There’s also closing costs, which run about $5000 here (YMMV).

9

Listen to miss bunny; she is wise. The 20% thing, while a good “rule of thumb,” perhaps isn’t so timely anymore. Mr. Snicks and I certainly didn’t have 20%, yet we were able to buy a house easily.

Before we bought, Mr. Snicks asked our realtor whether we should buy now or try to save up more dollars. The realtor advised us to buy now - in his opinion, the housing market would quickly outpace what we could save, meaning that our money wouldn’t buy us as much house in two or three years. That $150,000 (or whatever) house that we were looking at now might be $175,000 in a coupla years, and the amount we were able to save might not keep pace.

As for what you can afford, there’s lots of calculators available on the web that will give you a good idea as to what a lender would let you borrow. In some cases, it could be a good deal more than you expect, so be careful - use your gut and compare any calculated monthly payments with those you already have. For example, if your monthly rent is $650, and you make that payment easily along with your other living expenses, you might be able to look at a higher house payment. On the other hand, if things are tight, consider that carefully and look for houses in a more affordable range. Don’t take the amount that the calculators quote you as gospel; instead, find the amount that you’re comfortable with and look for houses in that range. Be cautious of realtors/lendors that will try to talk you into looking into houses that are outside of your comfort range.

And talk to a realtor - they really do make the whole process easier. They’ll take care of everything for you. They’re good resources; make use of them.

Good luck!
Snicks

10

My mom helped to develop co-ops.

The co-op we lived in was owned by a corporation whose shareholders were the residents. Residents made up the corporation’s board of directors and decided policy.

Each resident family bought a share when they moved in. They paid a level of “rent” that was decided by the corporation’s directors, based on the development’s financing expenses, plus amounts for the reserve fund (gotta save up for replacing those roofs after twenty years), and hiring contractors (snowplowing, etc).

A lot of chores tended to be done by the residents, because this led directly to lower costs and hence lower rent. I remember mowing a lot of lawns when I was in high school, and one of the residents had a plow and ould plow the internal streets.

Advantages: lower rent due to lower management expenses, less legal complexity, and lack of profit-taking by the management corporation. Greater visibility and control of the corporation’s financial affairs and general policies.

Possible advantage: greater control over admissions policy. (Yes, we decided who would get to move in. That could be an advantage or a disadvantage, and I can see now how it could lead to a minefield of problems.)

Possible disadvantage: when you move out, you don’t get to take equity with you.

I’m not sure how co-ops work where you are, but our co-op was a non-profit corporation. There was no distinction between “maintenance” and “rent”, just one charge. There was nothing for the tenants to finance; all financing was handled by the corporation (a fifty-year government mortgage for the developemnt as a whole). I seem to remember that the buy-in for new tenants was very nominal, around $500, but that was in 1978, and I could very much be wrong. I also seem to remember that rents were maybe 15% or 20% less than the local for-profit developments charged for equivalent lodging, and we were required to make some units available as “rent-geared-to-income” units for poorer people. This led to higher rent for the rest of us, but still less than market rate.

11

That doesn’t sound like any of the co-ops I’ve ever heard of. The ones I know are just a different form of ownership, but you do own something. Owners don’t pay “rent”; they pay their mortgage, and it costs a LOT more than $500 to buy in. They are buying a unit - shares that equal a unit, technically, but a “unit” all the same. They cost the same as a comparable condo would - whether that’s $200K or $500K or whatever. And when the owners move, they most likely sell their shares at market value, so they do earn equity, or whatever the equivalent of equity would be in a regular condo or house purchase.

12

missbunny, it may be that “co-ops” where you are are very different from the ones in Ontario, Canada. What you describe sounds like that I would call a condominium, except that you buy shares of the condominium corporation. Do the residents/shareholders have influence over the affairs of the “co-op corporation”?

I’m going to have to ask my stepfather, who served as the co-op’s president one year. And I’ll ask my friends who live in condos about the relationship between the condominium corporation and the condominium owners.

The Co-operative Housing Federation of Canada on what is a co-op:

On another page, they say:

I guess I was wrong about the rent-geared-to-income units raising the rent costs of the other tenants, but that’s a specific government program.

13

A Ontarion Condominium FAQ from Z Group states that a condominium is a “style of ownership” rather than a specific type of construction. It goes on to say:

[quote]
Once the condominium is registered and more than 50% of the units have been sold, the affairs of the condominium corporation will be turned over to an owner-elected Board of Directors. The Board will carry out its responsibilities as designated in the Condominium Act, the Declaration, the Bylaws and the Rules and Regulations.

Because you are an owner, you have a vote and a voice in the running of the corporation. You may choose to run for an elected position on the Board or simply cast your vote for someone.

[quote]
It looks like the condo corporation is controlled by the owners of the condo units, *who in the case of a residential condo, do not have to live in the units they own. (There have been plenty of stories in the Toronto media about people buying bunches of condos for investment purposes and then renting them out.)

Apparently there’s generally one vote per unit owned, so I can see a situation where a small number of owners with many units each could have a disproportionate influence on the policies of the condo board, and people renting their units might have very litttle. One of the other links I googled mentioned a reform to the Ontario Condominium Act which mandated that at least one seat on the condo board be allocated to resident owners, which seems to imply that this has caused problems.

With residential co-ops, there is no distiction between owner and resident. You have to live there to be part of it.

14

Wow, that was crappy coding in the last post… :eek:

15

Yes, what we call a co-op in the U.S. is not what you have in Canada. (At least none that I have ever heard of; doesn’t mean they don’t exist.) They are usually just like a condo complex (whether that’s a 2-unit complex or a 100-unit complex). Nobody pays reduced (or market rate) monthly charges to live there; what they pay is a mortgage. They own the unit through owning shares in the corporation. The corporation can still be non-profit - condominimium trusts are non-profit - but other than the ownership structure, they function like a condo complex. And it’s privately held by the owners; the government has nothing to do with it.

It sounds like what you call a co-op is what we’d call a subsidized housing development here, where there is government funding for a development in exchange for setting aside a certain number of units to people who would otherwise not be able to afford living there but who meet certain income requirements otherwise.

16

My impression is that the co-op structure itself has little to do with subsidisation per se; it’s more about lowering the housing expenses by making it non-profit, and placing the housing more directly under tenants’ control. But the specific rent-geared-to-income program came along and fit very well with it.

The CHFC’s website points to the International Co-operative Federation
[/quote]
, which covers more than just housing, and that in turn points to a [url=“http://www.coophousing.org/”]US co-op housing federation.

17

:smack:

18

Let’s try that again:

The CHFC’s website points to the International Co-operative Alliance, which covers more than just housing, and that in turn points to a US co-op housing federation.

19

**questions: condos vs. coops vs. house-buying **

The only problem with coops is dealing with all the chicken-shit regulations.

20

Please note I’m posting from England.

Here almost everyone tries to buy. We have a complicated procedure (you pay a lawyer, a surveyor and an estate agent), but there are long term profits.

My first purchase was a flat for £30,000 ($53,000). Due to an exceptionally violent UK housing boom, I sold it 3 months later for £41,500 ($74,000). (I could have got even more, but wanted to move quickly to a new job.)

The house I now reside in cost £60,000 ($106,000) 15 years ago. It is currently valued at £150,000 ($265,000).

I know it’s a pain to fund the original purchase, but it seems ludicrously risky not to.