It’s easy to get confused about the difference between co-ops and condos. If you pulled up pictures of each during a home search, they might seem exactly the same.
But if you’re in the market for a home — especially in a large city where both housing types are popular — you’ll learn quickly that the terms are not interchangeable.
You might have wondered if you’d prefer a house or a condo. But if you’re moving in the direction of co-op vs. condo, it’s important to understand their many distinct features.
Both give a resident the right to use certain common areas, such as pools, gyms, meeting rooms, and courtyards. But there are big differences when it comes to what you actually own when you purchase a condo or co-op.
You’ve done the work of budgeting for a home. Now you need to get a handle on the difference between a condo and a co-op.
What Is a Condo?
With a condominium, you own your home, but you don’t solely own anything outside your unit — not even the exterior walls. Common areas of the complex are owned and shared by all the condo owners collectively.
Buying a condo is not all that different from securing any other type of real estate.
Typically, the complex will be managed by a homeowners association that is responsible for maintaining the property and enforcing any covenants, conditions, and restrictions that govern property usage. The HOA sets the regular fees needed to pay for repairs, landscaping, other services, and insurance for the shared parts of the property. Special assessments also might be levied to pay for unexpected repairs and needed improvements that aren’t in the normal operating budget.
What Is a Co-op?
In the co-op vs. condo debate, it’s key to know that with a housing cooperative, residents don’t own their units. Instead, they hold shares in a nonprofit corporation that has the title to the property and grants proprietary leases to residents. The lease grants you the right to live in your specific unit and use the common elements of the co-op according to its bylaws and regulations.
A co-op manager usually collects monthly maintenance fees; enforces covenants, conditions and restrictions; and makes sure the property is well kept.
As a shareholder, you become a voting manager of the building, and as such have a say in how the co-op is run and maintained. Residents generally vote on any decision that affects the building.
With a co-op, should you want to sell your shares, members of the board of directors will have to approve your new buyer. They will be much more involved than would be the case with a condo. That can make it a lengthy process.
Co-ops and condos are both common-interest communities, but their governing documents have different legal mechanisms that determine how they operate and can affect residents’ costs, control over their units, and even the feeling of community.
Some Pros & Cons of Co-Ops vs Condos
Financing
It’s important to drill down on the details of buying an apartment. Because you aren’t actually buying any real estate with a co-op, the price per square foot is usually lower than it would be for a condo. Eligibility for financing may depend on credit score, down payment, project analysis, minimum square footage of a unit, and more.
However, it might be somewhat harder to get a mortgage for a co-op than a condo, even if the bottom-line price is less. It might not have all that much to do with you. Some lenders are reluctant to underwrite a mortgage for a property on which they can’t foreclose.
Most condo associations don’t restrict lending or financing in the building. If you can get a mortgage, the condo association will usually let you buy a place.
Fees
Because a co-op’s monthly fee can include payments for the building’s underlying mortgage and property taxes as well as amenities, maintenance, security, and utilities, it’s usually higher than the monthly fee for a condo. Either way, though, generally the more perks that come with your unit, the more there is to maintain and in turn, the more you’re likely to pay.
If you’re concerned about an increase in fees, you might want to ask the association or board about any improvements that may lead to an increase in the future — and what the rules are for those who do not pay their assessed dues.
All of these factors are important to weigh when you’re making a home-buying checklist, which includes figuring out how much money you’ll need and the best financing strategy.
Taxes
If you itemize on your income tax return, you may be able to deduct the portion of a co-op’s monthly fee that goes to property taxes and mortgage interest. However, none of a condo’s monthly maintenance fee is tax deductible.
You might want to consult a tax professional about these nuances before moving forward with a co-op or condo purchase.
Privacy vs Community
If you’ve ever lived in one of those neighborhoods where the only time you saw your fellow residents was just before they pulled their cars into their garages, it could take you a while to adjust to cooperative or association living. Because you share ownership with your neighbors, you may be more likely to see them at meetings and other events. And you can trust that they’ll know who you are.
Co-op boards often require prospective buyers — who are potential shareholders — to provide substantial personal information before a purchase is approved, including personal tax returns, personal and business references, and in-person interviews.
You may find that you like the sense of community and that everyone knows and looks out for each other. Or you may not. Again, you might want to ask some questions about socialization and privacy while checking out a particular co-op or an active condo community.
Restrictions
In a co-op, you might run into more rules regarding how you can renovate or even decorate your unit. And don’t forget: You’ll also have to deal with that rigorous application approval process if you ever decide to sell.
Both condos and co-ops frequently have restrictions on renting your unit, how many people can stay overnight or park in the parking lot, the type of pets you can have and their size, and more. Before you look at a unit, you may want to ask your agent about covenants, conditions, and restrictions that could be difficult to handle.
The Takeaway
Whether you end up saying home sweet co-op or condo, ownership offers many benefits you won’t find in a rental. When you’re ready to start a serious search, take the time to look for a lender that will work with you on whatever type of loan you might require. In the co-op vs. condo terrain, there are specialists for both sides.
SoFi offers competitive options for home loans, working with you to find the right fit for your financial needs. You can get prequalified online in just minutes, and you may be able to put as little as 3% down.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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