What Is a Condo? Differences Between a Condo vs. Apartment

A condominium (or condo) is a privately owned individual residential unit situated within a community of other housing units—like a high-rise residential building, condo complex, or neighborhood of townhomes or townhouses. A person often owns a condo in joint sovereignty with a condo owners association (COA) rather than a large corporation or a property management company (as is the case with apartments).

Condo owners buy a condo by depositing a down payment, paying closing costs, and paying a mortgage to build equity. Condo buildings might have shared amenities, like outdoor space, a gym, a laundry room, and a pool, but condo owners only own (and are entitled to renovate) the space inside their individual unit. If you choose to rent a condo instead of buying it, you’ll typically have more direct access to the unit owner than you would if you were renting an apartment.

Condominium associations, or condominium owners associations, are committees that oversee the maintenance of common spaces in a condominium complex and other annual expenses of the living space. They are similar to homeowner associations or HOAs for developments.

Condo unit dwellers elect a condo board of directors to oversee those tasks, allocate budgets, and determine what fees the residents are responsible for paying. This system is similar to the one in which homeowners pay HOA fees.

Condo associations also decide the CC&Rs (or covenants, conditions, and restrictions) of a complex, which are bylaws regulating what condo owners can and can’t do with their space (for instance, subletting) and the collective spaces, such as swimming pools, gardens, gyms, tennis courts, and so on.

Apartments and condos both usually have smaller square footage than a single-family home, and in both types of dwellings the renter might share walls with a neighbor. While they can appear identical at first glance, they do differ in a few key areas:

• Ownership: Condo owners own the space inside their individual unit and are entitled to make renovations inside this unit. If you’re renting a condo from someone, your landlord is likely a private citizen who owns the property and might live on-site. By comparison, an apartment building is usually owned and managed by a property management company or property manager who deals with the tenants. Apartment dwellers typically rent their apartments from these property management companies and thus cannot renovate the space.
• Affordability: A key difference between a condo and an apartment is the latter is usually more affordable. A condo owner might be subject to monthly COA fees that help to maintain a complex’s common areas, community amenities, or the upkeep of the condo community exterior (like landscaping or trash removal). The monthly payments for apartment renters usually only consist of rent and utility charges by outside companies.
• Maintenance: The owner of a condo unit is responsible for any repairs or replacements necessary for their homes, such as plumbing or electricity. With an apartment, it is the management company—not the tenant—who is responsible for paying maintenance costs and hiring people to fix them.

Condo living can have a number of perks. Here are pluses to keep in mind:

1. 1. Paying a mortgage can help you build equity. Owning real estate can be a great way to build equity and wealth. When apartment dwellers pay rent, their money isn’t accumulating to pay off an asset. With a condo mortgage, your money is going to eventually pay off the price of your living space.
2. 2. Your condo might appreciate in value over time. The value of a home can appreciate over time, making a condo a potentially worthwhile investment. If you add valuable renovations to your condo, the space will become more valuable and you can potentially profit from your investment if and when you decide to sell the space.
3. 3. Smaller size means less maintenance. Condos are often smaller than standard single-family homes, which can mean less cleanup and less maintenance for things like landscaping.
4. 4. Condos can be more affordable than single-family homes. Condos tend to be smaller than single-family homes, which means they have a higher possibility of being the most affordable option in any given real estate market. For first-time home buyers, a condo can be a more achievable goal than a detached home with property to manage (unless you’re considering a zero lot line home).

There are a few disadvantages to living in a condominium unit. Consider the following:

1. 1. A condo purchase requires a down payment. Like buying a house, buying a condo requires a large lump sum of money up front for a down payment—often tens of thousands of dollars—as well as money for closing costs. In contrast, the most money apartment dwellers will pay is usually a combination of their first or last month’s rent along with a security deposit.
2. 2. Community associations can be restrictive. If you’re purchasing a condo for the sole purpose of re-renting it, the bylaws of the community association (the CC&R, or covenants, conditions, and restrictions) might prevent you from doing so or limit how many unit owners can rent their condos at once. Much like an apartment, there are guidelines most tenants must follow, so in some cases, condos might provide a little less freedom than a private home.
3. 3. Monthly fees can be expensive. Condominium association fees can be costly and might continue to rise even when the real estate market is in a slump.
4. 4. A condo can be hard to sell. Due to their size and fees, condos usually have a limited pool of potential buyers. If you’ve outgrown your condo and are ready to move into a private home in a short amount of time, you can lose money on the property by marking it down in value to generate interest.

Whether you’re a first-time homebuyer or a seasoned investor, here are the most common steps in the process of buying a condo, which is similar to the process for buying a house.

• Assess your finances. Before you start condo hunting, look at your financial situation to figure out the size of your down payment (money you pay upfront on the home) and the maximum monthly mortgage payment you can afford based on your reserve funds and income.
• Find out your debt-to-income ratio and credit score. Two factors lenders use to determine your loan qualification are your credit score and debt-to-income ratio (DTI). You can request access to your credit report online through the credit bureaus. A high credit score (in the high 600s or 700s) will make it easier for you to get a good loan because it signals to lenders you can manage your debt responsibly.
• Find the right lender. After looking at your finances, schedule an appointment with a reputable lender to discuss the different home loan options available to you. Find a licensed lender (rather than a servicing company) with a good service record that offers the type of mortgage that’s best for your finances.
• Get pre-approved. With a lender, you can apply to be prequalified or preapproved for a loan, meaning they evaluate your finances and draft up a document that shows home-sellers the amount they’d be willing to loan you. Preapproval documents are good for 30–90 days. While getting a prequalification or preapproval letter isn’t necessary, it can speed up the loan process and put you in the best position to buy your dream condo before other interested parties.
• Choose a real estate agent. A good realtor will serve as a helpful guide through the home-buying process, answering questions, fielding conversations with the seller, and doing paperwork. Search online or ask friends and family for recommendations.
• Begin shopping for your condo. There are many factors to consider when looking for your dream home, such as long-term livability; proximity to work, shopping, schools, parks, and public amenities; property tax rates; and community amenities like snow removal or trash and recycling pickup.
• Make an offer. Once you find an ideal condo in your price range, work with your real estate agent to make an offer on the condo. This offer will include a total purchase price offer and a down payment offer, and an overview of your financial information.
• Begin the paperwork. After the seller accepts your offer, you start the contract of sale. You’ll need to put down an earnest money deposit, which will go toward your down payment. You might be required to place your earned money deposit into an escrow account until you and the buyer close the deal. Escrow protects the buyer’s deposit and ensures the seller receives it once the deal is officially closed.
• Conduct a home inspection. After entering into a contract, homebuyers typically hire a certified independent inspector to conduct a full home inspection of the condo. The home inspector will do a full walkthrough of the property and identify any defaults or concerns. Keep an eye out for expensive structural defects that could significantly affect renovation costs or devalue the property.
• Finalize documentation with your lender. Submit the mortgage application to your lender, who will review the documents and appraise the unit. It’s during this time you can lock in your mortgage interest rate, ensuring your quoted mortgage rate won’t change as you finish closing on your condo. After the details are finalized, your mortgage lender will give you a “good faith estimate” or a written overview of every detail of the mortgage, including when and how they expect you to pay.
• Close on the condo. After your loan is approved, your realtor will walk you through the last final details, including signing final documents, organizing homeowner’s insurance, and paying closing costs, escrow fees, and any other condo fees. Finally, on your designated closing date, you’ll be given the deed and keys to your new condo and can begin to enjoy condo homeownership.

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