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Townhomes vs. Condo What is the Difference?

Over the past few months, we have seen an influx of buyers who are interested in looking at townhouses (townhomes) and condominiums (condos) for purchase. So, we figured it might be time to explain some of the differences between townhouses and condos, highlighting the advantages and disadvantages of each.

Let’s start with a couple of definitions that I just pulled from Google:

  • A condominium is a building or complex of buildings containing a number of individually owned apartments or houses.
  • A townhouse is a tall, narrow, traditional row house, generally having three or more floors.

However, in my experience, these definitions are overly simplistic. Here in Iowa, a condo can be an apartment or a row home.  Condo owners own the unit, and the air within the unit, but not the land below the unit. Most condos are apartment-style, so it’s understandable that when you have multiple condos above each other, none of the individual condo owners own the land beneath the buildings.

Townhomes, on the other hand, are never apartment-style. These are typically side-by-side homes, and they can be one level or more. Because townhomes never have units on top of each other, the townhome owner does own the land beneath the building.

That sounds clear, right? However, there are condos that aren’t apartment-style. They don’t have units above or below, and some of them are row homes. But the owners of those condos do not own the land beneath the units.

So, if you can’t tell a condo from a townhome from the type of unit, how can you tell? One trick we realtors use: we look at the land associated with the unit on the county assessor page (or on the listing). If the acres associated with the unit are greater than 0.00, then the unit is a townhouse.

OK, now, you’re probably asking: why do *I* as a potential buyer care whether a unit is a townhome or a condo? There’s a very good reason: FHA loans.

Let’s take a step back. What is an FHA loan? An FHA loan is backed by the government, which can allow buyers with lower credit scores or lesser requirements to buy a home (FHA stands for Federal Housing Administration). Often, first-time homebuyers will use FHA loans instead of conventional loans to qualify for their first mortgages.

However, FHA loans cannot be used for condos unless the condo association has applied to qualify for FHA loans. Very few condo associations walk through the process of qualifying for FHA loans; these have specific rental and paperwork restrictions.

What does this mean to you?

  • If you’re wanting to buy a condo or townhouse and are pre-approved for an FHA loan, you must focus only on townhomes.
  • If you are paying cash or using a conventional loan, and are looking at a condo, you need to know that when you resell your unit, you may limit the potential buyers that can purchase your unit in the future.

If you’ve read this far, great job! With everything I’ve said above… keep in mind that you still need to choose the home that is right for you, whether it’s a condo, townhome, or a single-family house. And if you need help, I, Tawnia, or Jeannie would love to help.

Much love to you all. Have a fabulous summer. Check back in July for our 2022 mid-year market update!

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