Townhomes and Condos ... Which Are You Viewing? Do You Know and Understand the Differences?

 question house

     Townhome .... or Condo?  As an agent, do you know what type of property you are showing your client?  As a client, do you know what you are being shown?  Do you know and understand the differences between the two and what those differences can mean to you now ... and in the future?

     I have recently experienced a number of my pre-approved buyers out searching for properties, clearly confused about the type of property they are viewing or expressing interest in purchasing.  Many have thought they were looking at a townhome, when in reality they were looking at a condo. 

     Establishing the form of ownership is vital when moving forward with lending, so it is one of the first issues I address when speaking to a client pursuing property of this kind.  Each type of property, condo or townhome, poses different lending scenarios to consider.  I also believe that prospective buyers should be aware of the issues that they may face when it comes time for them to sell this property.  Condos are currently facing some pretty daunting challenges and the future isn't looking much brighter.

     As a former appraiser, I always do my own research regarding the property my clients are purchasing, especially when a condo or townhome.  There have been too many times where the property has been incorrectly represented to me during a lending inquiry, so rather than supply incorrect or useless information, I have learned to put my old appraising hat back on and do my own research. 

     The information I use to determine the correct property scenario follows. I thought this information would come in handy for those considering a condo or townhome purchase ... and for their agents. 

     I'll start with the #1 defining difference between the two properties:  This is an OWNERSHIP ISSUE, not a style, design, or physical characteristic comparison

 

Gene Mundt Condo Townhome Definitions

FREQUENTLY ASKED QUESTIONS

1.  How do I apply "the Test"?      2.  What documents do I need to secure from the Seller?     3.  Do Condominium Projects need Approvals for Financing?     4.  What Tools/Resources can I go to for clarification?realtor showing home

1.  As a Listing Agent - Request the Seller provide copies of their Tax Bill, Survey (if one exists), Declarations/Bi-Laws, Management Company and a Contact Name/Contact Information, Homeowners Association Name, Legal Description (from Title Policy, Mortgage, or other Closing Documents).

2.  As a Buyer's Agent - Review the Listing Agreement for the usual indicators: Property Type, HOA Dues, PIN.  Ask the Listing Agent to provide clarifications as listed above in Answer #1.

3.  Conventional financing requires Fannie Mae approval or "warrantable" status.  All lenders require a Survey or Questionnaire Form completed by the Association or Management Company, whichever applies, in the case of Condominiums. 

      FHA financing requires prior HUD approval, or a Direct Endorsement Lender to review the Condominium Complex Declarations/Bi-Laws and Survey for "acceptable" status and ability to lend.  (See: hud.gov).

     VA financing requires prior approval by the Veterans Administration  (See: va.gov).

     NOTE:   Townhomes/PUD's do NOT require prior approval and do NOT have Project Reviews (as of this writing, March 29, 2010).

4.  Use your local MLS, Recorder's and Treasurer's websites, preferred Lender, FHA and VA websites, to determine type and eligibility for varying financing options BEFORE you show properties, and most definitely BEFORE you write a contract. 

5.  In each and every case, ask the Owner of the property to provide the Legal Documents from their last closing.  Read the Legal Description.  If it refers to Condominium in the language of the document, it will 99.9% of the time, be a CONDO.  If it refers to PUD, (Planned Unit Development), Townhouse Association, etc ... you have a property NOT considered to be a CONDO, but rather a Townhouse.

SUMMARY

     In a world of ever-changing financing guidelines, especially for Condominiums, you can't afford to guess, when seeking lending information for the property you hope to buy  ... or when providing professional real estate services.

     When in doubt, contact those you trust and that are "in the know" about the legal classifications of these properties ... your preferrred mortgage lender, management companies, Homeowner Associations, and public websites.  Doing the homework upfront will save time and frustration moving forward in your transaction. 

     Know the differences between Townhomes and Condos ...

  

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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

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Comments

Gene: Terrific synopsis - when I was underwriting I can't tell you how many times I was submitted a loan that had PUD checked on the 1008 but was in actuality a condo and vice versa. The very first thing I would flip to was the prelim and look at the legal description - it doesn't lie! ;-)

And yes, right now, a condo can present many challenges in financing - an attached PUD may be a better option these days.

Posted by Cari Anderson over 8 years ago

Cari:  I so agree.  I feel badly for a buyer that has fallen in love with a condo unit, but has little or no option for financing it.  It seems almost cruel.  Still, it is best that a buyer that does have the capability to purchase/finance these properties be aware of what they might run into should they decide to sell.  I hope this article serves to help those that wish to know how to distinguish the two types of properties from one another.

I appreciate your writing ... as always Cari ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) over 8 years ago

Gene...very good to know data. I learned something else too and that is to seek out people like yourself when putting a deal together. Your post demonstrated how valuable a thing that can be. Thanks for the education.

Best

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) over 8 years ago

Richie:  I appreciate your kind words and are glad that you found value in my post.  We all have our own expertise to add to the total transaction.  When we all work together, the client gains and the deal gets closed much more easily. THAT is a valuable thing, for sure.  Thanks for taking the time to write ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) over 8 years ago

Gene - Great post and info!  So many buyers are absolutely confused as to the charasteristics of all the different types of housing.  Having said that though, I'm like Cari and Idon't assume anything and always defer to the prelim.

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

So many Realtors get confused also. Good post, you always give us good information.

Posted by Terri Onigkeit, GRI (Keller Williams of Northern Colorado) over 8 years ago

Donne:  I must confess ... my days served as an appraiser make me a stickler on some of these issues.  More likely ... a little bit of a pain ... lol    But, I pass this info on to try to side-step future issues within the transaction or heartache for the buyer.  Hopefully this blog serves a purpose ...

Terri:  This issue can get very confusing for all involved in a purchase.  I appreciate your kind words and hope that the info supplied here helps to clarify some points moving forward.  Thanks for writing, Terri ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) over 8 years ago

Very informative post Gene, thanks for the info.

Posted by Al Raymondi, Ormond By The Sea Florida - Home and Condo Sales (Ocean View Realty Group in Ormond By The Sea Florida) over 8 years ago

Ocean View Realty:  Thanks for writing and letting me know that you found the article worthwhile.  I appreciate your input.  Hope your Spring sales are busy and growing ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) over 8 years ago

Ocean View Realty:  Thanks for writing and letting me know that you found the article worthwhile.  I appreciate your input.  Hope your Spring sales are busy and growing ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) over 8 years ago

So what's the deal with 22.1 disclosure...I asked my sellers to ask their property management org and/or HOA for the #'s and the reply was "$150". My listing is a ss in a big condo building and I've been told by a buyer's agent that it's not possible to get financing. So I'm trying to track down the reasons why. What else should I be asking? Thanks for your help!

Posted by Leslie Ebersole, I help brokers build businesses they love. (Swanepoel T3 Group) over 8 years ago

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