Condo, townhouse or single-family home: what changes

Two homes can look the same from the street and be very different on paper. A row house can be a condocondominium (condo)A condominium (condo) is a one-family home in a project where each owner owns their unit and shares ownership of the common areas with the other owners. Units can be attached, semi-detached or detached. The owners make up an association that manages the money and the common areas, and you usually pay condo or homeowners association (HOA) fees separately from your mortgage payment. If you do not pay them, the association can pursue debt collection and even foreclosure. In Texas, condominium insurance covers your belongings and the interior of your unit.See the full definitionClose or a house on its own lot. That difference changes what you own, what insurance you need, how much you pay each month and which loan you can use. This guide compares the condo, the townhousetownhouseA townhouse is a home joined to the homes next to it by walls. The Census Bureau counts it as a single-family home when a ground-to-roof wall separates it from each neighboring unit and it does not share heating, air-conditioning or utilities with them. FHA's 203(k) program accepts townhomes. In Texas, townhouse insurance can cover the interior and exterior or only the interior, depending on whether the homeowners association (HOA) has a master policy that covers the exterior.See the full definitionClose and the single-family home, and explains how to check whether a condo is FHA-approved.¹

The minimum a condo project needs to request FHA Single-Unit Approval

5 units²

The longest term for an FHA loan on a condo unit

30 years²

Of the units sold: below that, Fannie Mae treats a condo project as new

90%⁴

What you own in each case

Single-family home. You own the land and the house. You decide on and pay for maintenance, and you insure the whole house. It may or may not be inside a homeowners associationhomeowners association (HOA)A homeowners association (HOA) is the organization formed in many subdivisions and condominium buildings to manage shared expenses such as landscaping, a pool, maintenance of common areas and, in condos, the roof and exteriors. Each owner pays dues, normally monthly, and must follow its rules, which can cover anything from the color of your door to renting the home out. If you do not pay, the association can add charges and, in several states, place a lien on your home. The dues count toward your monthly payment when lenders judge whether you can afford the mortgage.See the full definitionClose (HOA).

Condo. You own your unit and an undivided share of the common areas, such as hallways, the roof or the pool. HUD defines it this way: a project where homes may be attached, detached or manufactured homes, and the owners share the common elements.¹ The association manages those areas and charges you dues.

Townhouse. It shares one or two walls with the homes next door. It can be one of two things:

• Inside a planned unit development (PUD). Fannie Mae explains that there you hold title to your property, the lot and the house, and an interest in the HOA that manages the common areas.⁴
• A condo. You own the unit and a share of the common areas, as in a building. For FHA, if the unit includes the house and the land and there are no manufactured homes, it can be a site condominium.¹

Living in a community also means accepting its rules. Fannie Mae says it plainly: in these projects there are limits on your control over decisions and over how you use your unit and the common areas.⁴ Read the rules on renting out your unit, pets, parking and exterior changes before you buy.

Three ways to own

It is all yours

Single-family home

• You own the land and the house
• You insure the whole house
• You pay for all maintenance
• It may or may not have an HOA

Depends on the papers

Townhouse

• Shares walls with the neighbors
• In a PUD, you hold title to the lot and house
• As a condo, you share the common areas
• Insurance may be yours or the association's

You share the building

Condo

• You own your unit and a share of the common areas
• The master policy covers the building
• You insure the interior with an HO-6 if needed
• You pay dues to the association

Ask for the deed and the community's documents: they tell you which of the three you are buying.

Insurance: master policy, HO-6 or homeowners policy

This is one of the biggest differences for your wallet.

With a single-family home, you buy homeowners insurancehomeowners insuranceHomeowners insurance pays for losses and damage to your property if something unexpected happens, like a fire or a burglary, and usually includes liability coverage if someone is hurt at your home. Lenders require it as long as you have a mortgage, because the home is their collateral, and almost always collect it inside your monthly payment through the escrow account. The price depends on the location, the rebuilding cost, the deductible and your history. A standard policy does not cover floods or, in many states, earthquakes: those risks are insured separately.See the full definitionClose for the whole house. Our guide Home insurance explained covers what it pays for and how much to insure.

With a condo, there are two policies. Fannie Mae requires a master policy covering the common elements and the buildings, unless the project’s documents call for individual policies. To the extent that policy does not cover your unit’s interior or your improvements, you must have your own unit owner policy.⁵ That is the HO-6 policy. According to the NAIC, it insures your belongings and your walls, floors and ceiling.⁶

With a townhouse, the NAIC explains you may insure it with an individual homeowners policy or through the association’s master policy.⁶ In a PUD where each owner carries their own policy, the lender does not have to verify the common-area policy.⁵ Ask the association which applies to you.

Before you make an offer, ask the association for a copy of the master policy and ask:

• Does it cover only the structure, or also the inside of the units?
• What is the master policy’s deductibledeductibleA deductible is the part of an insurance claim you pay yourself. When you have a covered loss, the insurance company subtracts the deductible from the claim amount and pays you the rest. You may have a different deductible for each type of coverage. You will find it on the first page of your policy, called the declarations page, along with your coverages and limits. In taxes, the word "deductible" means something else: an expense that can lower the taxes you owe.See the full definitionClose? After a big loss, the association could split that cost among owners through a special assessmentspecial assessmentA special assessment is a charge, separate from regular dues, that a homeowners association, a city, a county or a special district can impose, usually to pay for construction, major repairs or the upkeep of facilities. In Florida, the summary you get before buying in a community with a mandatory association warns that you will have to pay any special assessments the association imposes, that you may owe others to the local government or a special district, and that not paying could result in a lien on your property. In Arizona, when you buy you must be told about special assessments the board has approved but not yet charged.See the full definitionClose.
• Do they require owners to carry their own HO-6?

With those answers, get an HO-6 or homeowners quote from your insurer. If you have questions about a policy, you can contact your state insurance department.⁶

HOA dues and your monthly payment

With a condo and many townhouses you pay dues to the association. Some single-family homes have them too. The CFPB explains that dues are usually not part of the payment to your mortgage servicer; they go directly to the association, and they can range from a few hundred dollars to more than a thousand a month. You need to count them when deciding what you can afford. Although not common, your servicer may agree to include them in your escrowescrow accountAn escrow account is an account set up by your mortgage lender to pay certain property-related expenses on your behalf, mainly property taxes and homeowners insurance. The money comes from a portion of your monthly mortgage payment: each month you contribute a share and the loan servicer pays the bills when they come due. That is why your payment is higher than principal and interest alone, and why it can change when taxes or the insurance premium go up. In some states the word also names the period between the offer and the closing.See the full definitionClose if you ask.⁷

When you compare, do not look only at price. A cheaper condo with high dues can cost you more each month than a single-family home with no dues, even though with the house you pay for the roof, the yard and full insurance. The mortgage calculator lets you add HOA dues to the payment. Our guide HOA and CDD explained covers special assessments and what happens if you do not pay.

Example with real numbers

Two homes at the same price

An example in words, not a real case, of why the monthly payment is not the same.

The condo

Pays the mortgage, taxes, an HO-6 and the monthly association dues

The single-family home

Pays the mortgage, taxes and a full homeowners policy, with no dues

Condo maintenance

The association pays for common areas from dues; it can charge special assessments

House maintenance

The family pays for everything: roof, yard, water heater

How they compare

They add up each monthly cost and set money aside for the maintenance that falls on them

HOA dues almost never go in the mortgage payment, according to the CFPB.⁷ Use the calculator to add the dues to your payment.

Run it with your numbersMortgage calculator

If you will buy a condo with FHA

FHA insures loans of up to 30 years for a unit in an FHA-approved condo project, or in a non-approved one that meets the Single-Unit Approval requirements.² For FHA to insure your loan, the unit must meet one of three conditions:¹

1. Be in an FHA-approved project. To approve a project, HUD looks at its insurance, financial condition, title, pending lawsuits and physical condition.²
2. Be a site condominium. Detached homes, or townhouse-style homes where the unit includes the house and the land, with no manufactured homes. The owner pays all insurance and maintenance on the home, except landscaping, and no project approval is needed.¹
3. Have Single-Unit Approval. The project must be complete and ready for occupancy, have at least five units and not be manufactured housing. It must also meet some of the approved-project requirements, such as FHA insurance concentration, the share of owner-occupants and financial condition.² Your lender makes the request.

How to look up the condo on HUD’s website

HUD has a public search tool for FHA-approved condos. You can search by state, county, city, ZIP code, project name or approval status. Note: FHA does not sell these properties; the list only says whether the project is approved.³

What each status on the list means:³

What the list says	What it means
Approved	The project is approved; FHA loans can be processed for its units
Expired	The approval lapsed
Rejected	It was not approved, or it is a Single-Unit Approval project
Withdrawn	Approval was withdrawn; FHA loans cannot be processed for now

If the project does not appear or does not say “Approved”, that does not mean you cannot buy there. Ask your lender whether the unit could get Single-Unit Approval, or whether another loan type fits better. Our FHA loan guide explains the rest of the program.

Before you make an offer on a condo or townhouse

1. 1. Ask for the papers

   Before the offer

   The declaration of condominium or the rules, the budget and the association's dues.⁴

2. 2. Find out what type of property it is

   Before the offer

   Condo, house on a lot in a PUD or site condominium: the deed says which.⁴

3. 3. Look up the project on HUD

   If you will use FHA

   Check that the status says «Approved» and note the date.³

4. 4. Ask for the master policy

   Before the offer

   What it covers, its deductible and whether owners must have an HO-6.⁵

5. 5. Get an insurance quote

   Before you sign the contract

   An HO-6 for the interior and your belongings, or a full homeowners policy.⁶

6. 6. Add the dues to your payment

   Before you decide

   HOA dues almost never go in your mortgage payment.⁷

   Try it with your numbersMortgage calculator

What the lender reviews in a condo

Even with a conventional loan, the lender reviews the whole project, not just your unit. Fannie Mae explains why: these units carry their own risks, such as the project’s financial stability, its condition and marketability, the limits on what you can decide as an owner and what happens if the project dissolves.⁴

A new condo raises more questions. For Fannie Mae, a condo project is new if, among other things, fewer than 90% of the units have been sold, it is not complete, phases are still to be added or the HOA is still in the developer’s hands.⁴ In those cases, ask how many units have been sold and when the association will pass to the owners. Our guide Buying a new construction home covers what to check with a builder.

If this is you

Your first purchase is a condo

Look up the project on HUD's website if you will use FHA, and ask for the master policy before you offer.³

You need room for the family

Compare a condo's HOA dues with the upkeep of a single-family home.⁷

Your loan is FHA and the building is not approved

Ask about Single-Unit Approval: the project must have at least five units.²

You want less upkeep

In a condo, the association cares for the common areas; check its budget and master policy.⁴

You like a townhouse

Ask whether it is a condo or a house on a lot in a PUD; it changes who insures it.⁶

Mistakes that cost you

• Mistake: Assuming a townhouse is always a condo, or never is.

  Instead: It can be either; the deed and the documents say which.⁴

• Mistake: Making an FHA offer on a condo without checking whether it is approved.

  Instead: Look up the project on HUD's website and check that it says «Approved».³

• Mistake: Believing the master policy covers everything inside your unit.

  Instead: If it does not cover the interior or your improvements, you need your own HO-6.⁵

• Mistake: Comparing only the purchase price.

  Instead: Add the HOA dues, which almost never go in your mortgage payment.⁷

• Mistake: Not reading the community's rules.

  Instead: In a project there are limits on how you use your unit and the common areas.⁴

• Mistake: Thinking «Rejected» on HUD's list is always bad news.

  Instead: It can also mark a Single-Unit Approval project; ask your lender.³

Free help

A HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose can help you for free or at low cost to compare options and read the community’s papers; search by ZIP code on the CFPB’s website.⁸ Our guide HUD-approved housing counselors explains what they do. For questions about a policy, you can contact your state insurance department.⁶ And before you sign, a home inspection helps you see the condition of your unit.

What to do this week

1. Ask for the deed or the legal description of the property to know what type it is.⁴
2. If you will use FHA, look up the project on HUD’s website and note its status.³
3. Ask the association for the master policy, the budget and the current dues.⁵
4. Get an HO-6 or homeowners insurance quote.⁶
5. Add the HOA dues to your payment in the mortgage calculator.⁷