Aesthetically we all know the difference between a condo and a townhouse. A townhouse is one that typically has a door to the outside and doesn’t have people living above or below them. Condos typically have a shared hallway to the entry and have multiple levels of homes. But to truly know if a home is a condo or townhouse, you want to confirm the legal description of the home. In some situations a home that looks like a townhouse can be a condo legally.
You are probably asking, why does this matter? There are some distinctions between the two types of homes that will affect potential buyers. In the eyes of the law, a home that is legally a townhouse is treated very similarly to a a detached home. On the other hand, a condo has different financing restrictions and regulations.
Because of this, it can get a bit more complicated if a home is legally a condo. First and foremost, it can affect lending, as a condo complex has to be approved for both VA and FHA lending. If the complex chooses not to apply for this designation, FHA and VA buyers will not be able to get a loan on the condo. In addition, condos require more information to and from the lender, including a Condo Ryder and questionnaire. Condos also have a slightly higher interest rate (roughly .25%).
Whether you are a buyer or seller of a condo or townhouse, make sure your agent and/or lender confirms the legal description of the home. If it is a condo, make sure to confirm if it can accept VA and FHA loans. This due diligence will save both buyers and sellers time and energy and ensure you are not accepting an offer with ineligible financing. If purchasing a condo and your buyer has a tight budget, remind them of the higher interest rate for this home.
Liz works full-time as a Real Estate Agent with Keller Williams Realty Downtown, LLC.
