Wednesday, September 22, 2010

How Much Money Do You Need To Buy A Condo

How Much Money Do You Need to Buy a Condo?


Condominiums can provide a low-cost way for you to become a homeowner, and typically are less expensive than single-family homes. In most respects, the purchase of a condominium is like the purchase of a traditional house; both use mortgages, both have property taxes. However, condominiums also require the periodic (usually monthly) payment of homeowner dues to pay for the general maintenance of common areas around the condominium. All of these factors affect the amount of money needed to buy a condominium.


Down Payment


A traditional down payment equals 20 percent of the purchase price of the condominium. However, it is possible to purchase a condominium with mortgages that use smaller down payments. In fact, in some instances, it is possible to enter a mortgage with a 3 percent down payment. A higher down payment will reduce the monthly mortgage bill and can help prevent the application of mortgage insurance (PMI) to the mortgage, which further reduces the ongoing amount of money needed on a monthly basis to buy a condominium.


Income to Mortgage Comparison


Generally, lenders limit mortgages on condominiums and other home purchases so that the monthly mortgage bill will not exceed 28 percent of one's gross monthly income. For people with low incomes, it is possible that the 28 percent guideline may be a barrier to buying any condominium. For those with higher incomes, the guideline can set upper parameters on the amount that a lender will be willing to loan.


Income to Total Debt Comparison


In addition to limiting the amount available to buy a condominium based on the size of the expected mortgage, lenders also consider overall debt-to-income ratios. The process used for this analysis is similar to that for comparing the mortgage to income. However, rather than looking solely at the mortgage, the lender adds all debts (including the potential mortgage) into the math. Generally, the debt-to-income ratio should not exceed 36 percent. Consequently, the amount of money needed to buy a condominium may increase if debts need to be paid off before a mortgage can be attained.


Homeowner Association Dues


In addition to the bills from paying taxes and the mortgage, one should expect to pay monthly homeowner association (HOA) dues. These dues are used to maintain common areas on the property, to pay for shared insurance and community needs. The amount that you need to buy a condo will vary with the potential for assessments by the HOA and with the financial condition of the association.







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