Will Buying a New Condo or Townhome Save Me Money?

Do condo units and townhomes help homebuyers save money and get into a new home faster?

The issue isn’t as cut and dry as it seems. There are many factors to consider when pricing out a home and determining if condo or townhouse will end up costing less than a detached, single-family home.

Consider All Costs, Not Just the Initial Price Tag

Take straight up pricing, for example. On the face of it, you may assume that a condo or townhouse costs less than a single family home, but that is not always the case. The asking price is determined by square footage, location, and demand. It’s entirely possible to find a 2,500 square foot home in the suburbs that is cheaper than a 2,500 square foot townhome in the city. It’s also equally as possible to find a smaller condo or townhome that is priced well above a larger single family home simply because of location and demand.

There are also hidden costs to consider. You’ll have surprise costs with any type of home you buy, but condos and townhomes typically have Homeowners Associations (HOA) which means you’ll be paying monthly dues to the Condo/Townhome HOA in addition to your mortgage. You don’t always have that extra cost with a single family home.

California realtor, Elizabeth Weintraub, explains, “To make a fair comparison price-wise, buyers should consider the amount of a condo’s association fees upfront and equate that sum to an increased mortgage payment.”

She provides the example: Assuming a $250 per month HOA fee and a 4.5% interest rate, that could be an additional payment on a principal loan sum of $50,000: $50,000 at 4.5 % interest over 30 years equals an additional principal and interest payment of $253.34 each month.

“What this means to you is that without a condo fee, you could bump up your price range by $50,000, buy a home, and pay about the same amount every month. In other words, if you were planning to buy a $250,000 condo with a monthly $250 fee, you could spend the same amount and instead buy a $300,000 house.”

If the condo’s HOA fee pays for services you’d be paying for anyway, like water or trash collection, the savings may be a wash. It also assumes you will stay in the home for 30 years, which is not always the case, particularly if it is a starter home.

Another little known fact? “Lenders usually charge higher interest rates for condo and townhome purchases than they do for single-family homes,” according to Jeremy Schachter, Branch Manager for Pinnacle Capital Mortgage in Phoenix.

Remember, when comparing prices compare apples to apples. You also need to factor in your mortgage rate and terms. If an HOA is involved, it muddies the waters even more. Find out ahead of time how HOA fees are used and how that affects your monthly housing outlay (mortgage + expenses). Then compare that with your estimated expenses for a single-family home, including mortgage, utilities, trash removal, etc. to get a more accurate cost comparison. Ideally, what you’re trying to determine is your monthly cost, all in, between the two or three different homes.

Finally, don’t forget to factor in the cost of tools and materials as a single-family homeowner. Even if you plan to do all your home exterior maintenance yourself, there’s still the initial cost to consider like investing in a lawn mower or snow blower, shovels, tools, etc., and the time involved in maintaining your exterior.

Incidental Costs Will Vary Between Property Types

In some cases, you’ll have the same cost considerations regardless of the type of home you buy. Appliances, plumbing, and internal mechanics, for example, are the homeowner’s responsibility regardless of whether you buy a townhome, condo, or single-family home. If a pipe bursts or the furnace goes out, you’re responsible for it no matter what kind of home it is.

One area where condos and townhomes can have an advantage is in heating and cooling costs. Since condos and townhouses share walls with neighbors and have more compact footprints, homeowners may end up paying less in monthly heating and cooling costs than a comparable single family home, especially if it’s an unit that is bounded on more than one side by a neighboring unit.

Another factor that can influence your monthly costs? Location. Commuting prices add up, particularly if you have to commute in from the suburbs to the city. You are much more likely to have to pay parking or transit fees if you’re driving in from a single-family home in the ‘burbs into the city, than if you live in a condo or townhome closer to where you work. Walkability and urban living are two of the biggest draws to condo and townhome living today.

So What’s the Answer?

Just as there is no one-size-fits-all home style out there, there isn’t an easy answer as to whether a condo or townhome will be cheaper for you in the long run than a single-family home.

Anytime you conduct a home search, you need to factor in your financial situation and what you can afford, and what work best for your lifestyle.

Visit NewHomeSource for more tips and advice on buying a new home!