Condos Are the New Starter Home for Some Budget-Minded Buyers

by Garcia Chris
13 minutes read
Condos Are the New Starter Home for Some Budget-Minded Buyers

Many young homebuyers grew up with the aspirational idea that their first property would be a starter home.

Typically a small two-bedroom, one-bath single-family house, starter homes were a tried and true way for buyers to gain a foothold on the real estate ladder, which they would climb to ever larger and more expensive homes.

While the promise of a sweet starter home on a cul-de-sac may linger as an initial dream home, today’s real estate market paints a much different reality.

According to data from Realtor.com®, in February, home prices hit a median of $415,500 nationwide, mortgage rates remained above 6.5%, and home inventory was down nearly 40% compared with what was typical from 2017 to 2019.

With the average single-family starter home now out of financial reach for many, some buyers are looking for a different way to achieve the American dream: condos.

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“It is possible that condos are becoming increasingly desirable for first-time homebuyers because they tend to be more affordable, especially in areas that have seen rapid single-family home price growth,” says Realtor.com senior economic research analyst Hannah Jones.

The price is right

Condos are private homes in large buildings and are generally at least 5% to 7% cheaper than single-family homes.

“Condos could be the new starter home, as many are more affordably priced than single-family homes,” says real estate agent Marisa Simonetti, founder of the Simonetti Real Estate Team in Minneapolis. “With increased interest rates, the sale price is that much more important for affordability.”

For proof, simply look at the listing pages.

“In Fairfax, VA (the town, not county), a 962-square-feet, single-family home sells for about $615,000 while a similarly sized condo sells for $360,000,” says Nancy Pav, a real estate agent at Century 21 Redwood Realty in Northern Virginia. “In Falls Church, VA, you can buy a 910-square-foot home for $580,000 and a condo for $274,000.”

Pav breaks the math down into what a buyer will shell out monthly.

“If you put 10% down on the condo in Falls Church, it’s $27,400,” explains Pav. “Your monthly payment would be $2,620, including the condo fee. If you bought the single-family home and put down 5% (a similar amount to the condo), your payment would be $4,112.”

“We bought a condo as a starter home”

Jennifer P. of Purcellville, VA, was 36 when she bought a condo as her starter home.

“With the help of a loan officer, I figured out my budget first and then only looked at condos that were under my budget,” says Jennifer. She bought a new-construction condo that was close to her job.

Her brother, Kevin P. of Herndon, VA, followed suit and didn’t even bother to look at single-family homes because they were financially out of reach.

“I decided to buy a condo to establish myself in the housing market,” says Kevin, who bought when he was 34. “I also figured it was a good way to get my feet wet without taking on too much all at once.”

Buying a condo helped him ease into homeownership without a lot of debt and the burden of being responsible for exterior maintenance like a new roof or siding, which are typically covered by condo fees.

But where’s the yard?

An affordable condo might be a path to homeownership, but what about the real estate market aspiration of a white picket fence and yard? It’s still possible with a condo.

Condos are often located in tall buildings similar to apartments or clumped together as single-story units with a postage stamp-sized yard or balcony. However, there are also planned communities with stand-alone condo homes with backyards and garages.

For Jennifer and Kevin, missing out on a yard—and mowing—weren’t deal breakers. Jennifer, though, had hoped for a garage.

“Unfortunately, I couldn’t afford a unit that also had a garage or to purchase one separately, which was about $25,000,” she says.

While having a yard wasn’t a deal breaker for Jennifer and Kevin, some buyers might regret not having more privacy or a little green space to call their own.

What about HOA fees and rules?

Condos are cheaper, but that doesn’t mean a buyer can put up a down payment, make monthly mortgage payments, and call it a day.

When you’re scrolling condo listings, look for homeowners association fees. An HOA is like the caretaker of the condo community, maintaining common areas and amenities, like the parking garage and pool. If the monthly HOA fees are too high, the affordability big picture might change for some buyers.

Let’s say you have a price target of $350,000, but the HOA fees are $700 a month. That’s a big chunk of change to cough up each month.

“If that is the case, keep looking for a better HOA rate,” says Mike Riso, strategic real estate adviser at Real Estate Bees in Los Angeles. “But remember, the more amenities, the higher the HOA fees.”

If you can afford the HOA fees, be sure to read the covenants, conditions, and restrictions. Overall, HOAs are in place to preserve property values and create a pleasant neighborhood.

Still, some buyers might find the rules are overly restrictive. So, if you’re stoked about decking out your condo for the holidays, installing a quirky mailbox, or hoping to rent out your condo when you move on, read the fine print first.

Are condo fees and HOA fees the same thing?

“HOA fees and condo fees are similar but not the same,” says Pav. The main distinction lies in who owns what. With a condo, you own your individual unit and jointly share the common areas.

With an HOA, you own your condo, but the HOA owns the common areas. Therefore, the condo fees are for the maintenance of shared property, while the HOA fees are for the upkeep of property under someone else’s ownership.

So will you have to pay for condo and HOA fees? Maybe.

In some cases, a condo might be part of a larger planned community that has HOA fees. If this is the case, it could mean a double whammy of fees. Yet, double fees aren’t necessarily a deal breaker.

“HOA fees and condo fees are paid separately, but because they are required fees, the lender will factor them into how much house you can buy when you are looking for a home,” says Pav.

You could save on taxes and insurance

If the HOA and condo fees dampen your spirits, there’s some good news: Condo owners typically pay less in property taxes.

“Since condos tend to be less expensive, the taxes will be lower,” says Pav. And you’ll likely save on insurance premiums.

“Condo owners get an HO-6 insurance policy, which covers the interior and recognizes that the HOA covers exterior,” says Simonetti.

On the other hand, a homeowners’ policy (HO-3) does cover the building, making it more expensive.

Ready to make a condo your starter home? Here are some listings to check out.

1. Atlanta, GA

32 Peachtree St NW Apt 1303
Price: $219,900
Monthly HOA fee: $677

A two-bedroom condo in the heart of downtown Atlanta

(Realtor.com)

2. Austin, TX

1015 E Yager Ln Unit 74
Price: $234,700
Monthly HOA fee: $302

This 891-square-foot condo has parking right out front.

(Realtor.com)

3. Boise, ID

9199 W Brogan Drive
Price: $330,000
Monthly HOA fee: $184

A two-story condo with an open floor plan in Boise, ID

(Realtor.com)

4. Minneapolis, MN

4948 Bryant Ave S, Apt 1
Price: $250,000
Monthly HOA fee: $450

A condo with new appliances and vintage charm in Minneapolis, MN

(Realtor.com)

5. Miami, FL

11111 Biscayne Blvd Unit 9B928
Price: $300,000
Monthly HOA fee: $1,799

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This two-bedroom condo comes with water views in Miami, FL.

(Realtor.com)

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