For first-time homebuyers, shopping for a condo means confronting an array of confusing words.
What is an HOA? What is an HO-6 condo insurance policy? And what are reserve funds?
A condominium is a residential community where a homeowner owns living space in the rooms of a building that is jointly owned by other residents living there. Condominiums are attractive options for homeowners who prefer not to spend time and money on the upkeep and repairs of shared spaces and would like on-site amenities, such as a swimming pool, a family park/playground, and workout rooms.
Knowing your way around the maze of terms will help you negotiate with confidence and find the path to homeownership. Here's a glossary of 10 essential condo terms:
- Amenities: Features of the community designed to improve the life of its residents, such as swimming pools, playgrounds, exercise facilities and clubhouses that residents can use.
- Common areas: Places in the community that are jointly owned by its residents, including the exterior structures of a community, and the roof, walls, stairs and the grounds around buildings.
- Condominium declaration/bylaws: The rules that govern the community. These may include restrictions and regulations on the use of units by residents, such as enforcing quiet hours after 10 p.m. and specifying which pets, if any, residents are allowed to keep. They also govern common areas, including amenities and parking.
- Homeowners association or HOA: It consists of all the owners who live within the condo. The board is a smaller group that is typically elected by the community members. It typically holds annual, quarterly, or monthly meetings to discuss maintenance and administrative issues related to the community. The board also keeps the association's rules and regulations and makes them available to potential residents before they decide to buy a unit in the condo.
- Homeowners association dues/fees: The funds collected from residents in a monthly payment to fund the maintenance and repair of common areas in the community and build up a reserve fund.
- HO-6 condo insurance policy: An insurance policy that covers the personal belongings you have in your unit and any damage to the drywall. Also known as condo insurance. A lender and/or an HOA often requires an HO-6 policy.
- Master insurance policy: The insurance policy held by the HOA and paid for from HOA dues. It covers property damage to common areas and general liability against the condominium.
- Reserve fund: A "rainy day" fund set aside to pay for emergency repairs or damage to the community. Examples are a roof that needs repair after a tree falls on it, a broken water main or a swimming pool that needs to be drained and refilled after a severe storm or hurricane.
- Special assessment: A payment residents must make to an association in addition to monthly HOA fees for the upkeep of a specific project, such as repaving the common area parking lot or for unanticipated expenditures, such as repairs for natural disasters.
- Unit: The space where a resident lives. Consider it the area between the four walls that make up your living unit. You don't own the walls or the floor or the ceiling, but you own what is between them.