Is a Condo or a Single-Family Residence Your Best First Home in Portland: Part 3
Understanding the Expenses and Regulations of Condo Ownership: Your HOA
Condos might seem to we first-time buyers more simple than their single-family brethren. But we need to know that though condo management is indeed a shared process, that process doesn't necessarily mean condo-living is complication free. The first thing to understand: Your HOA.
HOA stands for Home Owners Association. In Portland, there are about 2,000 HOAs in the Portland area, according Regenesis, a local HOA management consulting firm. HOAs agree on a list of CC & Rs: Covenants, Conditions & Restrictions. These rules can be either liberating or oppressive, depending on whether you personally agree with them or not. For instance, in the some condo buildings in Portland are entirely smoke free. You can’t even smoke in the unit you own, nor outside of it—nowhere on the property. Other common rules restrict what kind of decorations you can hang outside your unit (holiday lights, flags, etc.) and how long you can leave them hanging.
Essentially, your HOA is a mini-government. You could be a member of the board, but you don’t have total control because decisions generally go to majority vote. That means, for example, your HOA may vote for rental restrictions (if you’re thinking of renting the condo at some point, this should concern you). Your HOA may vote against a certain breed of dog, or instate certain quiet hours that make you feel like you’re a tenant all over again. If you can, get to know the people in a complex a little before you buy, possibly by attending an HOA meeting. At the very least, read those CC & Rs. And keep in mind your HOA comes with an HOA fee which may include both a monthly payment and a yearly special assessment fee. Be sure to figure these fees into your monthly expenses before you decide if the unit really fits your budget or not.
Next, we’ll hear from local ZipRealty agent Jeremy Fershleiser. Jeremy sells many more single-family homes(SFH) than he does condos, even though more than half of his clients are young people, largely first-time buyers—the very ones we might expect to gravitate toward the “ease” of condo living. I interviewed Jeremy to get more insight on condo vs. SFH.
Local Realtor(R) Insight
Jeremy agrees that one reason single-family homes are so popular with buyers in Portland is the fact that condos aren’t always cheaper than single-families, and for the space, privacy and control the latter offers, many buyers jump at the chance to own a detached home, unfettered by shared walls, not to mention the shared governance of an HOA.
When his clients consider the possible savings offered by shared HOA fees, Jeremy asks that prospective buyers calculate the HOA and what it covers in comparison with paying for those services as a single-family homeowner.
“ I often have a discussion with my clients who grapple with this decision about what are the actual costs being saved by HOA fees (some utilities, yard work, maintenance, etc...). I have them compare that with what it would cost to hire in minimal landscaping upkeep, the cost of the utilities, and even a fund for maintenance issues that come up. It's extremely common that the small house, not too far from the city center, beats out the condo downtown with much more space and control.”
But there’s more, in Portland, that makes the single-family home king among the majority of Jeremy’s clients:
"There is very little wiggle room with the 20% down requirement on condos. Several years ago there were zero money down loans, and other alternatives to that made buying a condo without 20% down (or more) possible. Now, with extremely tight overseeing on condo projects by the Federal Housing Administration (FHA), “options have been much, much more limiting for condos. There may be some credit unions that would consider a down payment that is smaller than 20% on a conventional loan, but when it comes to your major lenders, if it's a condo it has to be FHA approved for them to consider a loan without 20% down.” And winning FHA approval is much harder than it was before.
“I think this is a huge factor," says Jeremy. "Imagine that you are the first time home buyer with say $15,000 - $25,000 in the bank to spend between your down payment and any non-seller covered closing costs, you think you just want a condo, but something like 80% of the choices that you flag aren't FHA approved. So you keep getting let down. You'd quickly lose your steam when it's so much easier to buy a house and has some nice benefits to boot.”
On the other hand, tighter lending these days has led to banks asking for 20% down on single-family homes as well, which may change again the current distribution for buyers who opt for one type of property or the other.
Next, in part 4, we’ll focus on single-family homes in Portland proper, a necessary step in the process of deciding if a condo will truly work best for your first home.
Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert.