It’s easy to get confused about the differences between a condo and a co-op. 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. And it’s important to understand their many distinct features before you’re ready to buy.
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.
With a condo (short for condominium), you own your home, but you don’t solely own anything outside of your unit —not even the exterior walls. Common areas of the complex are owned and shared by all the condo owners collectively. Typically, the complex will be managed by an owners association that is responsible for maintaining the property, and that organization will enforce any covenants, conditions, and restrictions that govern property usage. The HOA sets the Regular or Ordinary monthly or quarterly assessments needed to pay for repairs, landscaping, and 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.
With a co-op (short for 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 is managed by a Co op Manager that 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.
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 their residents’ costs, control over their units, and even the feeling of community.
Some Pros & Cons of Co-Ops vs. Condos
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. Financing for these types of properties might be more challenging than a single family home with no association, because of the added risk to the lender. Eligibility for financing may depend upon many factors which includes things like credit score, down payment, project analysis, minimum square footage of unit (500 feet) and more.
One differentiator of note is that the co-op board reviews upfront the applications for individuals wanting to purchase within their building, this is not the case with condos.
When it comes to co ops, condos or even some PUDs , project eligibility is important when seeking financing.
One example is that lenders will ask the condo HOA (usually the management company) to complete an HOA Cert which asks specific questions about the project, such as – is there any pending litigation, if so, what is it for? Are individuals late on their monthly dues, if so how many? How many units are owner-occupied and how many are rentals?
The answers to these questions can have an impact on whether the project is eligible for certain types of financing. It is good to get any project certification needed for financing complete as soon as possible so that you and your chosen lender can address any issues that are evident.
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 unit assessments, you might want to ask the association or board about any improvements that may lead to a fee increase in the future—and what the rules are for those who do not pay their assessed dues.
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. It should, of course, go without saying that you’ll 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 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 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 or PUD community.
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 or subletting 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. Because associations are created by the recording of CC&Rs, if you have the name of the project, corporation, etc. you may be able to look up these rules with the county recorder’s office.
Find Your Fit, Then Find Financing
Whether you end up saying home sweet co-op, condo, or PUD, ownership offers many benefits you won’t find in a rental. When you’re ready to start your search, take time to look for a lender that will work with you on whatever type of loan you might require.
SoFi offers mortgages on owner-occupied primary residences and second homes. SoFi will work with you to find the right fit for your financial needs. You can get prequalified online in just minutes, and our dedicated member support specialists and MLOs are there to help you throughout the loan process.
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