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Once you're in the market to buy residential real estate, there are about a million decisions to make. One of the first will be which type of property to buy.
If you've decided to look beyond detached single-family homes, some urbanites will tell you that condos and townhouses can be a blast. From sipping merlot at the community hot tub to letting the kids play together out front, having lots of neighbors can be fantastic. Plus, condos and townhouses are often a more affordable alternative to detached single-family homes.
Fortunately, there's no wrong choice between a condo or a townhouse, as both offer plenty of benefits.
But how do you choose which one is right for you?
To help you decide, we'll explore the similarities and differences between condos and townhouses. That way, you'll have the information you need to know before you buy.
Condo vs. townhouse by definition
Let's start with an understanding of what exactly is a condo and what is a townhouse.
Condo defined
A condo (condominium) is a dwelling located on a shared piece of land. Other dwellings on the property are owned by other people, and the street entrance may be shared. Condo buildings sometimes look like apartment buildings. The difference is that apartments are rented and condos are bought and sold as individual units.
A condo owner doesn't own the land the condo unit sits on. You own the space inside your unit, and you share ownership of and financial responsibility for portions of the property that are shared. For example, any common area like a lobby, the roof, elevator, parking lot, pool, fitness center, or clubhouse. A homeowners association (HOA) is responsible for maintaining those shared assets. Each condo owner shares the cost of that maintenance in the form of monthly HOA fees.
A condo might have a private yard if it's on the ground floor.
Townhouse defined
A townhouse or townhome is a home that shares at least one wall with another house. In some parts of the country, attached, townhouse-style homes are called row houses. Row houses or townhouses are usually at least two stories tall. The street entrance is private and not shared with other residences.
When you own a townhouse, you own the land it sits on. Even so, as a townhouse owner, you might be subject to HOA fees. (The same is true for a detached house in some communities.) For example, newer townhouses are often built in communities with shared amenities like pools and clubhouses. The cost to maintain those assets is covered by HOA fees that all the owners pay. If the townhouse owners do not share financial responsibility for communal assets, there will be no HOA fees to pay.
A townhouse offers a little more privacy than a condo. In addition to private entrances, townhouse owners often have their own front and back yards.
What are the differences between owning a condo vs. townhouse?
Here are the main differences between the two types of dwellings.
Architecture
When you think condo vs. townhouse, many people picture an apartment vs. a rowhouse. A condo is often an apartment-style unit in a condo building, but it doesn't have to be. A townhouse is a multi-level home attached by at least one wall to someone else's home.
Ownership
The true difference between a condo unit and a townhouse is in the ownership structure, not the architecture. A condo is a residential unit on a multi-unit property with joint ownership of the land and communal area. A townhouse is a single-family home with private ownership of the land. A townhouse-style home could be a condo if it shares ownership of the land and common areas.
HOA fees
You'll be hard-pressed to find a condo without an HOA (sometimes called a condo association). But HOAs are only a maybe for a townhouse, especially older townhouses.
HOA rules are usually stricter for condos. For example, you might have to get all home improvements pre-approved. In a townhouse community, the rules might end at your front door.
Plus, townhouse HOA fees are almost always lower because most townhouses don't offer as many different kinds of amenities as their condo counterparts.
Mortgage lenders factor HOA fees into your mortgage application. Before looking for a loan, consider using a mortgage calculator to figure out how much of an HOA fee you can afford along with your mortgage payment.
Property taxes
If you're comparing condo vs. townhouse and the two homes are more or less equivalent (same square footage, same number of bedrooms and bathrooms, same year of construction), the property taxes on the condo will probably be lower.
There is no difference in how property taxes are calculated for a condo and a townhouse. You will pay taxes based on your local government's property tax rate and your home's assessed value. The difference is that in a condo, part of the value belongs to the HOA, not to you. You'll pay additional property taxes in a roundabout way, though, because the HOA pays property taxes and all the owners support the HOA through monthly fees.
Homeowners insurance
Homeowners insurance for a condo costs less than a policy for a comparable single-family home. That's because your condo insurance policy covers less -- typically only the interior of your unit. You might not have to pay to insure any outside features of the property. Again, you'll pay for the coverage through your HOA.
Townhouse insurance is very much like insurance for a detached home.
If you have a mortgage, you can opt to have the mortgage servicer pay your property taxes and homeowners insurance. The annual total for the two expenses is divided by 12 and added to your monthly mortgage payment in equal installments. The HOA monthly fee is usually paid directly to the HOA by the owner.
Mortgage interest rates
The mortgage rates for condos tend to be a little higher than they are for comparable single-family homes. Also, each government agency has its own set of criteria for qualifying a condo for a government-backed loan. They'll need the answers to more than a few questions that don't apply to a townhouse or a detached home.
Condo vs. townhouse: Which is right for me?
The choice between condo or townhouse is driven by so many factors, many of which are personal.
Reasons to buy a condo:
- Condos tend to cost less than townhouses of comparable square footage
- You may find an active social scene in a condo community, especially for adults
- Condos are often located in downtown neighborhoods
- Many condos come with luxury amenities
- An HOA relieves you of responsibility for exterior maintenance
Reasons to buy a townhouse:
- Townhouses can offer more privacy in general
- A townhouse might offer private outdoor space
- Townhouses are typically located in more suburban areas
- Families might find more outdoor play opportunities for kids in a townhouse
- Many townhouses have no homeowners association fee
Still have questions?
Here are some other questions we've answered:
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FAQs
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A typical condo is one unit on a multi-family property. You own the space inside your unit, but share ownership of common areas. Virtually all condos have a monthly HOA fee to pay, and the HOA is responsible for maintaining common areas. A typical townhouse is a home, two stories or more, that shares at least one wall with another home that has a different owner. Some townhouses have an HOA fee and some do not.
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The process to apply for a mortgage for a condo or a townhouse is the same as getting a mortgage for a single-family home. In either case, the HOA fees will be considered as part of your application. But getting a mortgage for a condo might be more complicated. Government-backed mortgages have special rules for condos. For example, many programs require that at least 50% of the units are owner-occupied. Also, no more than 10% of the building's square footage can be commercial space. Townhouses are generally not subject to these special rules.
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Condos and townhouses both offer benefits. A condo could give you the opportunity to live in an exciting downtown neighborhood. A townhouse is usually going to be on a residential street full of neighbors. Both options can come with perks like a community clubhouse and pool. Condos and townhouses are both multi-family housing with social opportunities, but you might find more families with kids in a townhouse neighborhood, and more adult families in a condo community.
If you want to avoid HOA fees, which add to your monthly housing cost, opt for the townhouse (but some townhouses do have HOA fees, so be sure to check).
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Kimberly is a career writer and editor with more than 30 years' experience. She's a bankruptcy survivor, small business owner, and homeschool parent. In addition to writing for The Motley Fool, she offers content strategy to financial technology startups, owns and manages a 350-writer content agency, and offers pro-bono financial counseling.
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