Let’s start off by clarifying that a condo is not an “apartment” building. Apartment buildings are multi-unit buildings owned by one entity with units that are rented out. A condominium or “condo” for short is a way of owning property. Condos often resemble apartments in the sense that they can be similar in physical appearance. Especially in cities, they are often multi-story buildings that contain many units. The difference is that each unit in a condo is individually owned. Of course, a building is composed of more than just the units. Sometimes there is a pool, lobby, lawn or some other common area. Each unit owner has a proportionate interest in the common areas. For example, if there is a condo with 100 identically sized units, a pool, barbecue area and lobby, each unit owner owns a 1% interest in all of those elements as well as the walls of the building, elevators, etc…
With this ownership interest comes responsibility. Each unit owner is responsible for helping maintain & insure the common areas, thus each pays a maintenance fee. Typically, additional insurance is not required, but taxes are the responsibility of each individual homeowner. So, when buying a condo, the total monthly housing payment is going to include taxes and a maintenance fee, but no insurance, while a single family home purchase results in tax and insurance payments but no monthly maintenance fee.
Condos don’t all have to look like high rises or apartment buildings. They can take many forms. A common form is the “townhouse” or “row house” format. In fact, you may never guess, but your neighbor’s single family house may actually be a condominium. The popularity of “site condos” has increased in recent years. Rather than subdividing a property, an owner may create a CPR (Condominium Property Regime) which can allow for multiple single family residences to be built on one lot.
For lending purposes, condominiums have special rules. Different programs do have different rules. The FHA (Federal Housing Administration) and VA (Veteran’s Administration) each have their own list of approved condos. Most site condos are not on that list, but a lot of “typical” multi-unit condos are on it. The FHA has a requirement that 51% of the units in the condo are occupied by owners or as second homes. The VA has no occupancy requirement. Both do have a 2-4 week process for approving condos that are not on the current list (assuming the required documents are available). Fannie Mae and Freddie Mac also have their own rules, which have changed a lot recently.
So, how can you tell if a property in Hawaii is a condominium? The only true way is to view the title, or to see the TMK (Tax Map Key) number. The final four numbers of the TMK will be -0000 if the property is not a condo, but if there is a number there, then it is a condo. Here is a sample TMK; 3/7-8-009. If it were a condo, there would be an additional number at the end: 3/7-8-009-0001.
There is also a similar step-brother to condos, the Co-op. A Co-op is similar to a condo, but rather than owning an interest in the property itself, the property is owned by a company and each unit owner owns shares in the company. Despite this seemingly minor difference, Co-ops are very difficult to find financing for. None in Hawaii can be financed via FHA, VA, Fannie Mae or Freddie Mac.
Another variation is the Condo-tel. This is a condo that allows for short term rentals, usually by having a ‘rental pool’ in which owners can place their units to be rented like a hotel room. Financing for these can be done by local banks that have their own “portfolios”, but can’t be sold to the FHA, VA, Fannie Mae or Freddie Mac.
Always keep in mind, if you are shopping for a VA loan, use our VA Approved Condominium Check Tool to determine if the condo you are looking at is actually approved for VA financing.