Many people think that a condominium and townhouse can be classified as the same thing or that they are classified according to the type of structure. This is far from the truth; there are many differences between the two.
•A condominium structure can be found in many different forms, such as an apartment, which can be in a smaller complex or in a large high-rise complex; or it could be a two- or three-story building. An owner of a condominium owns their individual unit in addition to a portion of the common property, which can include land and other amenities on the grounds.
•A townhouse structure can be found in the form of a single family home, or an attached two- or three-story home. A big difference from the condominium is that a townhouse structure has its own roof. An owner of a townhouse owns the unit, as well as the ground it is built on. These structures usually come with a garage and a front or back yard or both.
Both condominiums and townhouses usually have a homeowner’s association, of which, an owner will have to pay dues to each month. These fees are used for the exterior maintenance of the grounds and buildings, which sometimes includes snow removal and lawn maintenance. The fees usually also cover trash pick-up and outdoor water usage. In condominiums, sometimes water, gas, trash, and electric are included in these dues. A homeowner’s association also carries a master insurance policy which covers the structure of the building, outdoor damage, and in condominiums, the common areas of the property.
Besides the form of ownership, there are other differences as well. The interest rate on a condominium is typically higher than on a townhouse. This is because the value of the condominium is partially based on the building as a whole and if other condominium owners are unable to make their payments, resulting in foreclosure, this will bring down the value of the other units around it. It is considered to be a higher risk investment. The difference in interest rate can be upwards of about .125% to .375% compared to that of a townhouse.
The homeowner’s insurance requirements are different for a townhouse and condominium. A condominium is typically required to carry HO4 insurance. The HO4 insurance policy is basically renter’s insurance and covers the personal property inside the owner’s unit. Some townhouse owners are required to carry HO6 insurance. This type of policy will cover the structure of the property, as well as personal belongings. It is always best to pay attention and understand the master policy of the homeowner’s association to know what type of insurance policy you are required to carry, as this can vary from association to association.
Some properties for purchase are classified as a townhouse for the main living structure, but if purchasing a parking space, this could be zoned as a condominium. It is in your best interest to understand how each piece of the property is classified, how the homeowner’s association works and what type of monthly payment, interest rate, and fees are involved when purchasing a townhouse or condominium.