Condominiums are a creative answer to the problem of expensive housing. Wouldn’t it be great if young people could just buy a house? They would have a yard, a garage, and 2 or 3 bedrooms. They’d settle in and make a life. Unfortunately in many areas of the country, especially big cities where the jobs are, that’s just not possible.
Not only is the price of a small house out of reach for someone just starting out in life, but they can’t scrape together 10% of the price plus closing costs to get in. Enter the condo. It’s much like an apartment, but you own it. They even came up with legal details about what you own. Since structural elements like beams and roofs are shared, you own the “air space” in your unit, and all owners share ownership of common areas. It sounds weird, but it works. A homeowner’s association with the power to levy assessments is necessary to ensure maintenance and repair of common areas. The condo is usually small, and since the price is lower, it usually qualifies for an FHA loan. This is great news for first time buyers, because FHA only requires a 3.5% downpayment. This is a foot in the door to the real estate market. Later in life these same buyers use the equity in their condo, plus increased earning power to buy a larger home.
But FHA may remove the bottom rungs from the real estate ladder. Before FHA will make a loan on a condo, FHA must approve the condominium project. Since FHA’s mission is to get Americans into good homes, they review the project to make sure the homes are livable and the CC&Rs are workable. This provides a good home for the buyer and protects FHA against defaults.