Buying a condo is much different than buying a townhouse or single family house.  There’s a few subtleties that you have to take into account.

The following is a list of easy real estate tips you can implement to make the process of buying a condo less overwhelming, easier and less costly.

Tip #1: Accumulate More Money Than You Need For a Down Payment

Nothing can shoot down your goals of buying a condo faster than not having a suitable down payment.  In Canada, you’ll need the following % of the final purchase price:

• 5% for resale condos.  However in some specific areas or depending on your credit history, lenders may require more.
• 20% for pre-construction condos. This depends on the builder and depends how far the construction has progressed.  If there’s unsold units close to the project’s completion date, builders sometimes accept lower down payments.

It’s always better to have more than the minimum % of your ideal purchase price.

Why?

There’s a possibility that you may change your mind on buying a resale or pre-construction condo.  If you’re forced to buy pre-construction, you’ll need a larger down payment.

Keep in mind that in recent years, condos have become a popular living option.  That means that resale condos aren’t always available in the area you want to buy in.  This may leave you with pre-construction as your only option.

Tip #2: Set Money Aside for Condo Closing Costs

There are costs associated to closing a real estate sale. The real estate industry named these “closing costs”.

Original right?

In Canada, it’s not possible to lump closing costs in your mortgage.  That means you’ll need to pay them in cash.

Here’s a list of possible costs due on the closing a condo:

• Land transfer tax (if buying resale condo).
• Municipal levies.
• Lawyer or notary fees.
• Condo home inspections.
• Prepaid condo fees to cover balance of first month.
• Prepaid municipal tax for period previous owner paid for that you’re moving into.
• Bank or lender appraisal fee (when buying resale).

The three largest unavoidable closing costs are usually the land transfer tax, legal fees and balance of the municipal tax.  These can reach between $5,000 and $10,000 for a $350,000 condo (depending in which market you’re buying in).

Then there’s the post closing costs:

• Connection fees for services and utilities (ie hydro, gas, internet, phone).
• Moving expenses.
• First maintenance on heating and cooling systems.

Most of these closing costs aren’t large amounts but they add up quickly.  Make sure that on top of your down payment, you have enough money set aside for closing costs.

Tip #3: Get Your Paperwork Organized

Most lenders will need to validate your information before letting you sign a mortgage.  You may even need to show documentation before getting pre-approved for a mortgage.

Most lenders will want to see:

• Proof of income: if you’re salaried, at least two paychecks.  If you’re self-employed, you’ll need tax returns to prove income.
• Official letter of employment with your title, employment status and gross income.

In some areas, lenders may also need you to provide:

• Your last two years’ tax papers.
• Your last two months’ bank statements.

These documents are generally easy to get but take time to gather.

Tip #4: Decrease Your Debt Load

Debt load is overlooked by first-time condo buyers.

But what is it and why does it matter?

Debt load is the ratio of your total debts to your gross income.  Lenders use this ratio as one of the variables they look at to estimate the level of risk of lending you money for a mortgage.  The lower the debt load, the better mortgage rates you’ll get.

Look at it from the lender’s perspective and it makes sense.

If you’re buying an expensive condo and have all sorts of debts, you’ll be financially spread thin.  Should you lose your income, you won’t be able to pay the mortgage. To cover this risk, the lender will offer a mortgage at a higher rate.

What If I Have Large Debts?

For those with large student debts or car loans, there’s two things you can do to mitigate the effect of debt load:

• Pay your bills on time, every month.
• Have (or work towards) long term and established income.

Consult a debt specialist and explain that you want to buy a condo.  You may be able to consolidate your debts to increase monthly cash flow and pay less interest.

Tip #5: Check and Improve Your Credit Score

Your credit score is like a first impression when interacting with banks and lenders.  It shows lenders how much debt you have and how good you are at repaying them.

A low credit score can affect your mortgage’s interest rate when buying a condo.  However, even if you don’t have many debts, your score may still be low.  There’s many reasons why this can happen:

• Bad credit utilization: if you have small credit limits but are always getting near that limit, the lenders see you as constantly “maxing out”.  Instead, increase your credit limits (even if you don’t use it).
• Opening and closing credit accounts: if you constantly open and close credit cards, you’re negatively affecting your credit utilization.  You’re also not establishing a long term credit history.
• Debt ratios are unbalanced: lenders like to see your income to debt ratio as small as possible.  Because it’s unrealistic for everyone to have 0 debt, lenders like to see 30% as debt to gross income.
• Not making payments on time: every time you miss a payment, that’s a ding to your credit score.
• You aren’t aware of a bad credit mark: sometimes a lender leaves  a negative strike on your account by accident.  Check your credit score and profile.

How to Check Your Credit Score (for free)

In Canada, checking your credit score is free.

You can order a copy of your credit file by mail with the two national credit bureaus: Equifax Canada and TransUnion Canada.  All you have to do is fill out the personal information questionnaires.

Tip #6: Use a Mortgage Broker to Get a Better Rate

The first person to contact when buying a condo, regardless of resale or pre-construction, is a mortgage broker.

Why?

Mortgage brokers are experts at finding the right mortgage for your specific situation.

They also have access to lending companies you have no way of contacting directly.  These companies are specialized in residential mortgages only and don’t offer the services of a bank.  They don’t interact with the public.  Because they have no overhead, their rates are usually much better than banks.

If you try shopping around for mortgages at banks yourself, you’ll face two challenges:

• You may not find the best rates.
• You’ll waste a lot time in appointments or on the phone.

No Drawbacks to Using Mortgage Brokers

So how much does a mortgage broker cost you in the end?  Their services are always free.  They get a commission bonce the deal is signed at no extra cost to you.  You’re basically hiring professional help for free.

Mortgage brokers also make it easier for you to get pre-approved.  This is an important step before contacting real estate agents or shopping for pre-construction condos. 

Tip #7: Get Professional Help by Building a Real Estate Team

Don’t underestimate the help of other real estate professionals.  A successful condo purchase is the culmination of many moving parts.

Find a Realtor You’re Comfortable Working With

After finding a mortgage broker, it’s time to contact a real estate agent.  When calling realtors, make sure they’re knowledgeable of the condo market in your area.

When buying a resale condo, you won’t have to pay the realtor’s commission.  Your realtor gets his or her commission from the selling realtor’s commission fee.

What About Buying Pre-Construction Condos?

Most people don’t know this, but if you’re buying a new construction condo, a real estate agent can also help you.  You’ll have to be up front with your realtor about wanting to buy pre-construction.  Because developers typically don’t pay commissions you’ll likely have to pay it.

That extra expense is well worth it though.  Here’s why:

The realtor can help you negotiate a better deal with the builder when buying a pre-construction condo:

• Reduce the down payment.
• Get better upgrades for the same cost.
• Negotiate parking or storage units.
• Review the contract and negotiate better terms.

In other words, a realtor pays for itself, even when buying new construction condos.  If you’re in a market that offers both resale and pre-construction condos, ask your realtor that the search not just be limited to resale.

Home Inspectors Are Invaluable

If you’re buying a resale condo, you need to hire a reputable home inspector.  While it’s common to get a home inspection for single family house, condos need them too.

When placing an offer on a condo, your real estate agent will include a home inspection clause as part of the condition of the offer.  This lets you inspect the property and back out if there’s any construction problems.

If you go forward with the purchase, knowing the flaws with the construction may save you thousands in unexpected renovations.  You can also use the findings of a home inspection to ask the seller to drop the price.  This can help you cover the costs of the renovations.

Tip #8: Don’t Buy a Condo Just For the View

Whether it’s a resale or pre-construction condo, don’t buy solely for the view. At any time, a new building can be built that will block your view.  The exception is if you’re buying a condo overlooking a protected park, heritage buildings, a body of water or newly built buildings.

This tip is important because condo builders charge more the higher the floor. This affects resale prices since the seller passes this cost onto you.  Do some research on what buildings are around you when buying a condo on a high floor.

Bonus Tip: Write a Detailed Budget

Before starting the process of buying a condo, write a detailed budget.  This will help you determine the following:

• Can you actually afford a condo?
• If you can, how much can you afford?
• Is there a lifestyle compromise (if any) you should expect?

The #1 mistake first-time condo buyers make when preparing their budget is replacing their “Monthly Rent” line for “Mortgage Payments”.

If only it was that easy.

You see, when you own a condo, you’re responsible for much more than just condo mortgage payments.

Instead of assuming your monthly rent will be more or less the same as future mortgage payments, consider the following “Basic Condo Expenses”:

• Mortgage payments.
• Condo Fees.
• Municipal and School Taxes.

How To Estimate Municipal and School Taxes

There’s a few ways you can get a general idea of how much your basic home expenses will be.

For the municipal and school taxes, each city has a different tax rate.  You can find this information on the municipalities’ websites. Here are quick links for the major condo markets:

Vancouver – Toronto – Montreal

Ottawa – Calgary – Edmonton – Halifax

Just multiply the rate you find on those pages with the property value of the condo you plan to buy.  Divide by 12 to find out how much it’ll be per month.

Don’t forget two things when estimating municipal taxes:

• They’re based on how much the municipality estimates your property at: Good news though, the municipality is always behind market prices.
• They increase year over year: While it’s never huge increases, it’s best not to plan a tight budget.

How to Estimate Condo Fees

This can get a bit tricky since condo fee rates vary by:

• The condo development: more amenities means higher condo fees.
• The age of the building: the older the builder, the higher the condo fees.  
• The square footage of the condo: the more square feet, the higher the condo fees.

Here’s the good news:

There’s ways you can estimate them accurately for at least 5-10 years.  You just need to know if you’re buying pre-construction or resale:

Estimating Pre-Construction Condo Fees

If you’re planning on buying a pre-construction condo, ask the developer how much they plan on charging.  It’s a safe move to take that number and increase it by 15-20%.

Why?

Because once the developer hands over the property to the owners, condo fees usually go up.  That’s to build up the reserve fund and make modifications.

Estimating Resale Condo Fees

For those thinking of buying a resale condo, you can look at the listings on Realtor.ca.  Each listing shows how much the condo fees are.

This is what you’re looking for (near the bottom of the listing):

So look at a few properties in developments that appeal to you and for condo sizes you’re comfortable with.  That’ll give you and idea of how much you’ll be paying in condo fees.

General Rules For Estimating Condo Fees

If you’re looking for more square footage, in general, maintenance fees in condo townhouses tend to be lower than typical condos.

To give yourself more financial leeway, expect the following when you budget for condo fees:

• Condo fees increase every year.
• The older the building (15+ years), the more likely condo fees will spike.

Other Budget Considerations

Then there’s expenses that vary by area.  Here are some examples of extra expenses condo owners may have that renters don’t:

• Heating and/or cooling;
• Electricity;
• Hot water tank rental;
• Furnace and/or air conditioner maintenance;

Wrapping This Up

Buying a condo involves many moving parts and processes.  However, there’s a lot you can do to make it easier for yourself.  Feel free to contact us if you need more condo advice!