Co-Op Vs. Condo: Differences, Pros And Cons

What’s The Difference Between A Condo And A Co-Op? 

The main difference between condos and co-ops boils down to who owns the property. If you live in a condominium, you have ownership over your individual unit. If you live in a co-op, you own shares of a company that owns the building. As a co-op owner, you don’t own the unit. Instead, you own the right to live in the building and be a part of the community that manages it. 

This difference in ownership can lead to other disparities between co-op and condo living. Here are some other ways that these home types can differ: 

Affordability 

Co-ops are better suited for short-term dwellers while condos may be a better fit for those seeking something more long-term. This is because buying a condo is a form of real estate investment, and each of your monthly payments will help you build equity over time. 

Co-ops can have high down payments based on where you’re located, ranging between 20% – 30% in popular cities. However, the Washington Post found that most co-ops tend to be cheaper than condos per square foot. Another trade-off is that co-ops tend to have cheaper closing costs than condos, since you won’t have to pay for things like title insurance.

At a glance, condos may seem to have cheaper monthly payments than co-ops. However, co-op payments are usually more expansive, covering things like utilities, building maintenance, and other costs that aren’t rolled into a condo’s monthly payment. Keep in mind, with a co-op you may be asked to contribute to the overall upkeep of the building, including common spaces or updates. 

Governance

It’s common for condo dwellers to answer to a condo association, which much like a homeowners association (HOA), creates and maintains community guidelines. However, at the end of the day, condo dwellers have ownership over their unit, which affords them the freedoms that a typical homeowner has, like the ability to renovate. 

Co-op residents, on the other hand, are only paying for the right to live in the building. Since co-ops are a collective ownership, any changes a resident hopes to make will have to go through the shareholders for approval. Most co-ops also hire a management company or assemble a board of shareholders, to make decisions and carry out day-to-day tasks. This includes fee collections and managing common spaces. 

By nature, co-op communities are usually tightly knit. Though great for camaraderie, this can make the approval process for getting into a co-op intimidating or lengthy. Plus, if you want to make any changes to your living space, you’ll need permission before doing so. 

Amenities 

If you’re looking for a community with lots to do, a condo is probably your better match. Condos tend to offer residents a wider array of amenities. Here are some of the most common ones:

  • Pool access
  • Rooftop deck or lounge area
  • Gym 
  • Recreational sports areas and courts
  • Event space 

That isn’t to say however, that co-ops don’t bring anything to the table. Many co-ops also provide shared spaces for residents – game rooms and lounge areas being among the most common. And with a co-op you’ll also have the peace of mind that your fellow residents are similarly invested in preserving and taking care of the building and community spaces.  

It’s also common for both condos and co-ops to have some sort of front desk service and third-party security to keep residents safe. 

Subletting 

If you’re looking to break into real estate investment and think subletting may be something you’re interested in, co-ops aren’t the best fit. Most co-op boards don’t allow for subletting, and those that do usually allow it only in very particular circumstances. 

Condos, however, are a great option for buyers looking to generate a passive income through renting out their home. Very rarely do condo associations have rules against subletting, because it’s, after all, your property. 

Eligibility 

At first, the mortgage approval processes for co-ops and condos seem quite similar. You must get approved for a loan and choose your lender. Your lender then must review the property you’re interested in financing to ensure it meets criteria like construction status and occupancy requirements. Only then will your lender move forward with approving a mortgage. 

But when it comes to moving into a co-op, there are a few more steps involved regarding eligibility. Not only is it more difficult to secure financing for this kind of housing, but you’ll also have to undergo the approval process set in place by the board of the building you’re interested in. This involves an in-depth application process, interview and gaining board approval before you’re permitted to buy co-op shares. 

Availability 

While condos are widely available in both cities and suburban areas, co-ops are a bit harder to come by. Most often found in densely populated cities and metropolitan areas, co-ops may not be the best fit for buyers who crave a more bucolic lifestyle. 

Financing

Since a condo is considered real estate, most lenders aren’t afraid to work with borrowers looking to finance one. Because of this, the process of buying a condo is nearly identical to that of buying a house. Here are the types of mortgages generally available for condos:

  • Conventional 
  • FHA
  • USDA
  • VA 

Financing a co-op, however, is where it gets tricky. Not only are lenders reluctant to take on co-op loans, but co-op themselves can have strict rules regarding financing. Depending on how you plan to finance, the co-op board may rule you ineligible.

Additionally, when the time comes for you to move on from co-op living, it can be difficult to find someone to sell your shares to. Even if you find an interested buyer, they still need approval from the co-op’s board before you can sell. 

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