Buyer's Guide

Market Insider Tips

What to Know Before You Buy

In some parts of the country, townhouses may be owned as condominiums or the homeowner may own it fee simple – in which she owns the building and/or land in its entirety. As you can see, the questions to ask if you are thinking of purchasing a townhouse will be quite different than those you'll consider when purchasing a condominium unit. Let's take a look at three of the most significant factors you should consider.

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1 - Homeowners Association

HOA fees can be quite expensive, so you'll need to take them into account when determining how much you can afford to spend on housing every month.

During the purchase process, you'll be given a pile of HOA-related paperwork, and you'll need to read every word of every page – or have your attorney do so. You'll want to know if the HOA is solvent, how often it levies assessments and if there is pending litigation, among other issues.

Finally, you'll need to consider if you want to live in an area managed by an association. Some people prefer the structure that an HOA affords while others find that structure too confining.

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2 - Getting Financed

Purchasing a fee simple town house is identical to purchasing a detached, single-family dwelling as far as lenders are concerned. If the town house is owned as a condominium, lending becomes a bit trickier.

Owner-occupied homes tend to be maintained better than those used strictly as rentals. Lenders understand this and make it a part of the lending decision. Find out the ratio of owner-occupied to tenant-occupied units before making an offer. If it exceeds 30 percent, you may not be able to get a mortgage for it.

Determine the percentage of homeowners that are delinquent in paying their HOA dues. This is critical information because banks typically won't lend to anyone wishing to purchase a town house where the HOA delinquency rate is more than 15 percent.

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3 - Exit Strategy

Ask your real estate agent to give you statistics on townhouse sales in your area over the past year. Check the average days on the market. The longer a home remains on the market, the less money it eventually brings. Should you decide to purchase, ask your agent to keep you updated on the townhouse market in the future. Most agents are happy to do this.

Keep in mind that even when your equity begins building, your property taxes may rise. Property reassessments can take a bite out of how much equity you're able to build.

Living in a townhouse is ideal for those who want the benefit of homeownership at a cheaper price and without some of the headaches that come with a detached home. Choose your townhouse wisely and with an eye toward future market value.

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