Condo and Apartment Glossary: Plain-English Definitions

The process of paying down a mortgage over time through regular payments of principal and interest. Early payments are mostly interest; later payments are mostly principal. A 30-year mortgage has 360 amortisation payments.

A licensed appraiser's formal estimate of a property's market value. Required by lenders to ensure the loan amount does not exceed the property's worth. A low appraisal can require renegotiation or additional down payment.

The increase in a property's market value over time. Condo appreciation averages roughly 3 to 4% nationally per year, slightly below single-family homes. Local conditions vary significantly.

The governing document of a condo association that establishes rules for operating the HOA, including how board elections work, how fees are set, and how rules are enforced. Separate from (but subordinate to) the CC&Rs.

Covenants, Conditions and Restrictions -- the master legal document governing a condominium community. Sets out what owners can and cannot do with their units, pet rules, rental restrictions, and the overall governance structure. Recorded with the county.

Fees paid at the time of closing a real estate purchase, typically 2 to 5% of the purchase price. Includes lender origination fees, appraisal, title insurance, prepaid property taxes and insurance, transfer taxes (state/county), and attorney fees (required in some states).

The portions of a condominium building owned collectively by all unit owners (through the HOA), including hallways, lobbies, elevators, roof, exterior walls, and amenity areas. Maintained by the HOA from fee collections.

A document completed by the HOA at the request of a buyer's lender, disclosing HOA financial health, litigation status, owner-occupancy ratio, and building condition. Required for conventional, FHA, and VA mortgage approval. Typically costs $150 to $500 to obtain.

A condominium unit within a hotel-operated complex, typically with a mandatory or optional rental pool program. Almost impossible to finance with conventional, FHA, or VA loans. Requires portfolio lending at higher rates and larger down payments.

A mortgage not insured by the federal government (not FHA, VA, or USDA). Conforming conventional loans must meet Fannie Mae/Freddie Mac guidelines, including warrantability requirements for condos. Generally requires 3 to 20% down.

The legal document that transfers ownership of real property from seller to buyer. When you buy a condo, you receive a deed to your specific unit. Deeds are recorded with the county recorder. Renters do not receive deeds.

The portion of the purchase price you pay in cash on closing day. The remainder is financed through a mortgage. FHA loans require a minimum 3.5% down. Conventional loans require 3 to 20%. A down payment below 20% on a conventional loan triggers PMI.

A deposit paid by the buyer when signing a purchase contract, demonstrating good-faith intention to complete the sale. Typically 1 to 3% of purchase price. Applied toward the down payment at closing. Forfeited if the buyer backs out without a contract contingency.

The market value of your condo minus the remaining mortgage balance. If your condo is worth $350,000 and you owe $220,000, you have $130,000 in equity. Equity increases as you pay down your mortgage and as the property appreciates.

A neutral third party that holds funds and documents during a real estate transaction until all conditions are met and the sale can close. After closing, escrow also refers to the account your lender holds for property taxes and insurance payments (impound account).

A mortgage insured by the Federal Housing Administration, allowing down payments as low as 3.5% and more flexible credit requirements. Only available for FHA-approved condo projects. Includes mandatory mortgage insurance premium (MIP) that does not automatically cancel for low-down-payment borrowers.

The certification that a specific condo project meets HUD's requirements for FHA financing, including owner-occupancy ratios, reserve funding, and litigation status. Valid for 3 years. Many desirable condos are not FHA-approved.

A mortgage with an interest rate that does not change over the life of the loan. Most common terms are 15 and 30 years. Provides payment predictability -- your P&I payment stays the same regardless of interest rate movements.

Homeowners Association -- the governing body of a condominium community. Collects monthly fees from all unit owners, maintains common areas, enforces CC&Rs, and manages building finances. Run by an elected board of directors from among the unit owners.

The building insurance policy carried by the HOA covering the building structure and common areas. Can be walls-in (all-in) or walls-out (bare walls), which determines how much personal HO-6 coverage you need as a unit owner.

The standard insurance policy for condo unit owners. Covers your unit's interior, personal property, personal liability, loss of use, and loss assessment coverage. Required by most lenders at closing. Crucial line item: ensure loss assessment coverage is at least $50,000.

A legal claim against a property for an unpaid debt. HOAs can place liens for unpaid dues or special assessments. Lenders already have a first mortgage lien. HOA liens in some states can foreclose even if the mortgage is current.

A portion of the condominium's common elements assigned exclusively to one or more specific units -- such as a parking space, storage locker, or balcony. You have exclusive use rights but cannot typically sell it separately from your unit.

An HO-6 policy line item that pays your proportional share of an HOA special assessment triggered by an insured loss. Default policies often provide only $1,000 -- far too low. Increasing to $50,000 or $100,000 adds minimal premium but provides critical protection.

A federal tax deduction for interest paid on up to $750,000 of mortgage debt used to buy, build, or improve a primary or secondary residence. Available only to itemisers. Post-TCJA, most homeowners do not itemise because the standard deduction ($14,600 single / $29,200 married in 2024) exceeds their itemised deductions.

A condo unit or project that does not meet Fannie Mae/Freddie Mac guidelines for conventional financing. Common disqualifiers: investor ownership above 50%, single entity owning more than 10% of units, pending litigation, inadequate reserves, or condotel characteristics.

The percentage of units in a condo building that are occupied by their owners (vs rented out). FHA requires at least 50% owner-occupied for project approval. Conventional loans typically require at least 50-70% owner-occupancy for warrantable status. Higher is better for financing and resale.

Private Mortgage Insurance -- required on conventional loans with down payments below 20%. Costs 0.5 to 1.5% of the loan amount annually. Cancels automatically (on conforming loans) when your loan balance reaches 80% of the original purchase price. Unlike FHA MIP, conventional PMI can be eliminated without refinancing.

Prepaid interest paid at closing to reduce the mortgage interest rate. One point equals 1% of the loan amount and typically reduces the rate by 0.25%. Deductible in the year paid for a primary residence purchase.

The purchase price divided by the annual rent for a comparable unit. Below 15: buying looks financially attractive. 15 to 20: grey zone. Above 20: renting may be the smarter financial choice unless you have strong local appreciation conviction.

Annual tax levied by local governments on real property. Condo owners pay property tax on their unit; renters do not (it is built into rent). US average is about 1.1% of assessed value annually, but ranges from 0.3% (Hawaii) to 2.5%+ (Illinois, New Jersey).

The savings account maintained by a condo HOA specifically for major future expenditures (roof replacement, elevator modernisation, etc.). Funded by a portion of each month's HOA fees. The percent-funded ratio (current balance vs fully-funded target) indicates reserve health.

A professional engineering assessment that estimates the cost and timing of major building component replacements and calculates how much the HOA needs to save. A key document to review before buying a condo. Percent funded above 70% is healthy; below 30% is a red flag.

State and local tax cap -- the $10,000 annual limit on the federal deduction for state and local income and property taxes, established by the TCJA in 2017. This significantly limits the value of the property tax deduction for condo owners in high-tax states like New York, California, and New Jersey.

A one-time charge levied by the HOA when the reserve fund is insufficient to cover a major repair or expense. Can range from $1,000 to $150,000+ per unit. Cannot be refused by unit owners. Examples: Miami Beach structural repairs, Surfside-related Florida assessments.

Tax Cuts and Jobs Act of 2017 -- the federal tax reform that roughly doubled the standard deduction, effectively eliminating itemised deductions (including mortgage interest) for most middle-income homeowners. Also limited SALT deductions to $10,000 and reduced the mortgage debt cap from $1M to $750K.

Insurance protecting the buyer (and lender) against defects in the property's title -- prior liens, claims, legal issues, or errors in public records. Required by lenders; owner's title insurance is optional but recommended. Paid as a one-time premium at closing.

A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active-duty servicemembers, and surviving spouses. No down payment required. Requires the condo to be on the VA's separate condo approval list, which differs from the FHA list.

Also called all-in or single entity coverage. An HOA master insurance policy that covers not just the building structure but also original interior fixtures, flooring, appliances, and built-ins. Reduces the amount of personal HO-6 coverage needed.

A condo unit and project that meets Fannie Mae and Freddie Mac guidelines for conventional mortgage financing. Generally requires: owner-occupancy above 50%, no single entity owning more than 10% of units, adequate reserves, no material pending litigation, and commercial space below 25%.