Townhouses

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

-Minute Read
Published on Month 13, 2022
Share:

When we think of “home,” many of us picture the traditional single-family residence, complete with a manicured lawn or white picket fence. But this type of housing may not work for everyone. It’s important to remember that there are other housing options on the market and that the idea of “home” can look different for everyone.

Today, we’re going to look at two home types that aren’t your typical house: co-ops (or housing cooperatives) and condos. Consider this your official guide for exploring how these homes differ, what they have to offer and all things co-ops vs condos. 

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. 

Take the first step toward buying a house.

Get approved to see what you qualify for.

Start My Approval

Benefits And Drawbacks Of Co-Ops Vs. Condos 

Whether a co-op or a condo is right for you depends on your financial situation, personal preferences and your plans for homeownership. Let’s look at what co-op and condo living has to offer and some considerations to keep in mind before taking the leap. 

Benefits 

Co-Ops 

  • Exclusivity: Unlike apartments or condos where you might not know anything about your neighbors, with a co-op you may have some sway in who moves into the community. Plus, there’s the peace of mind that everyone in your building has had to undergo the same rigorous screening process that you have. In many co-op communities your neighbors may share similar lifestyles or values to you.
  • Less responsibility: With a co-op, you’re likely to have something more similar to a renter’s experience than the responsibilities of owning a home. You won’t be personally responsible for common spaces. Depending on your co-op association, your building may work with a property management company to help with building maintenance. 
  • Tax deductions: Although co-ops aren’t considered real estate, co-op shareholders may still qualify for homeowner tax deductions, which can include real estate taxes. Depending on where you’re located, you may also be able to deduct interest on your loan for your share of the property, your share of the interest on the building’s mortgage and even certain maintenance fees. For better insight, it’s best to get in touch with a qualified tax professional.

Condos 

  • Real estate: Perhaps the biggest advantage when it comes to buying a condo is that you’re earning equity on your property. This means your monthly payments are putting money back in your pocket and any renovations you make could up your home’s value.
  • Maintenance: Like co-ops, many of the labor-intensive chores that come with homeownership are typically taken care of by the condo association. 
  • Amenities: Although you’ll have to pay association fees, many amenities within a condo community could save you some money elsewhere. It’s not uncommon for condos to provide their residents with recreational facilities within walking distance. Not to mention, many condo associations will host events for their residents to foster a sense of community. 

Drawbacks 

Co-Ops 

  • No ownership / shared ownership: Unlike with condos or a house, you’ll miss out on the benefits that come with owning your own real estate. There may also be some risks involved should a co-op member happen to default on a payment – though this instance is usually rare with the application process in place. 
  • Strict rules: Before entering into a co-op, you should know their rules and regulations. Whether you can have things like pets, the ability to sublet, make renovations or if there’s a curfew should be outlined in your leasing contract. With co-ops, you’re entering into a community, not just an independent unit like you would with a condo. It’s not unusual for there to be stricter rules than with a condo association. 
  • Higher monthly fees: Although co-ops typically have attractively low prices, their monthly expenses can be high. Things like parking, utilities and other overhead costs are shouldered by collective shareholders. 
  • Difficulty financing and selling shares: Even in uncertain times, there will always be a market for home buyers looking for real estate. But it can be more challenging to find an interested buyer and sell off shares in a co-op. Even when you find an interested buyer, they could be rejected by the co-op’s board. 

Condos

  • Size / storage: If you like having a spacious home, be aware that most condos aren’t constructed this way. Likewise, if you have a large family, a condo might not be your ideal living space. Since condos are a connected structure, you’ll rarely have the tall ceilings or open-concept designs that you might find in a single-family home. 
  • HOA fees: While condos are relatively affordable, you could have hundreds or thousands of dollars in HOA fees on a monthly or annual basis. 
  • Parking: Condos aren’t the most vehicle-friendly housing option. It’s not uncommon for condos to have limited parking options, which can be difficult for families with more than one vehicle or if you plan to have multiple guests over.

The Bottom Line: Is Buying A Co-Op Or Condo Better? 

Co-ops and condos are popular alternatives to the single-family home, and for good reason. But deciding which home type is better for you depends on where you want to live and what plans you have in store for your home. 

If you’re interested in renovating, selling or subletting, a condo is better suited for your needs. If you’re looking for something short-term or plan to live in a bustling city, a co-op is an affordable option that isn’t your typical rental unit. 

Before taking the plunge and buying a condo or a co-op share, you should understand your needs and be sure to explore other types of homes as well. 

Home Buyer's Guide

Follow our step-by-step guide to learn how to buy a home.

Read the Home Buyer's Guide

See What You Qualify For