Province
TORONTO — To mow or not to mow.
For prospective home buyers, that is a question.
But while many people say it all boils down to lifestyle choice, there’s more to consider when you opt to buy a condominium instead of a house.
For the most part, experts say soon-to-be unit owners should consider how condo fees will eat into their chequebooks.
“When you buy a condo, you’re actually buying a little piece of the condo corporation,” explains Trish Hart, a specialist at mortgage brokerage Invis.
“You don’t own a title to land. You own a piece of the pie.”
To maintain the common areas such as the roof, walkways and landscaping, co-owners pay a condo fee. Amenities such as a fitness facility, swimming pool and party room can add to this fee.
This charge affects the purchaser’s budget from the start of the buying process until the end of ownership.
For starters, half of the condo fee is included in the debt calculation required by a bank when you apply for a mortgage.
“That’s something I didn’t have to do in a single-family home,” Hart said.
The expense calculation for a single-family home includes property taxes, utilities and interest. If you choose a condo, the fee will be added to the expenses that drive down the amount the bank will lend.
For example, if the buyer’s annual income is $52,000, the typical approved mortgage for a condo unit is $190,000.
If the same buyer went for a single house, the approvable mortgage could be upped by 10 grand to $200,000.
And it’s all due to the condominium fee.
Experts are quick to add that even though it might seem to be a drawback, the fixed cost for condo maintenance can help your budgeting in the long run, acting in effect as a forced savings plan.
“With homes, you don’t think too much about the future — you don’t think, ‘I’m gonna put away $10,000 for my roof repair 10 years from now,'” said Denise Lash, host of the new reality TV show The MondoCondo.
“With condos, the law is you have to put money away every month for future repairs. You don’t have any surprises. It enables you to budget,” Lash said.
Hart added that the no-surprises nature of the condo fee — barring some major unexpected problem with the building that requires an extra levy — allows you to have a better idea what your actual cost is every month to run the property.
Lash also noted that the availability of amenities can add to your savings. “In a way, you are saving because you have a fitness club, a concierge and a party room,” she said.
“You have the advantages that when you live in a home you may pay extra for.”
The future condo owner should also consider restrictions on borrowing.
“Banks have certain restrictions on the type of condo they will finance. I have banks that won’t look at an apartment condo that’s less than 600 square feet,” Hart said. “It’s not the type of market [banks] want to get in.”
You also have to be prepared for more paperwork.
Banks require a reserve fund study to determine whether the condo corporation is financially viable.
“[Banks] want to know whether the condo corp has enough money set aside to replace the carpet in the next three years,” Hart said.
Doug Gray, author of 101 Streetsmart Condo Buying Tips for Canadians, said that for resales, look at the minutes from condo meetings.
“The minutes will say if there are hidden problems — if there’s a copper piping leaking behind that concrete wall or if there’s a leak in the roof because of age.”
© The Vancouver Province 2007