A condo or condominium is one of a group of housing units where each homeowner owns their individual unit space and all the dwellings share ownership of the common areas. Condos can include high-rise and low-rise apartment units, townhomes and some duplexes depending on how the title is registered. The biggest difference between a condo and a house is if you buy a condo you will not own a specific plot of land. Instead, you own a unit in a building on a plot of land. As well, instead of the homeowner making all of the decisions about their home, with condominium ownership a condo board that is comprised of unit owners makes decisions about the building together.
There are many items you should be aware of before buying a condo, below are in my opinion the 5 most important ones from a financing perspective. As lenders condo guidelines vary, it is important your mortgage professional knows the condo details so they can place you with a lender who fits your mortgage needs. Your realtor can give you more information about the condo purchase process, below I will only touch on the condo details that can also affect your mortgage financing options.
1. Condo Fees– you are responsible for the repairs and maintenance of your personal property and surrounding land when you own a house however it is not the same with a condo. As you own the unit and the common areas are shared you pay a monthly condo fee based on the size of your unit and a portion of those funds are used for maintenance and repairs of the common areas among other things.You will be personally responsible for some of the costs relating to your individually owned unit though there will be some exceptions where condo fees will be used to cover repairs related to the building even if it’s in your personally owned unit. Condo fees are calculated into your mortgage qualifying ratios.
2. Age Restrictions– some condo complexes have age restrictions such as no one under age 55 is allowed to live in that complex. Be aware there are less lender options available with the age restricted condo purchases and you could be asked for a larger downpayment or be charged a higher interest rate.
3. Square Footage– lenders are being more selective about the properties they have in their portfolios these days and some lenders even have a minimum square footage requirement for condo purchases. Do ensure your desired property meets the lender minimum before removing conditions.
4. Renter Population– if you are going to owner occupy your new condo, ask how many other units are also owner-occupied as some lenders have concerns with complexes that have a high renter population.
5. Condo Documents– THIS IS AN IMPORTANT ONE! I can’t stress enough how important the condo documents are to you if you’re thinking of purchasing a condo. Condo Document Review is almost like a home inspection, however, instead of inspecting the home, you are reviewing the health of the condo corporation and how it’s run. More lenders are asking for condo documents upfront as part of the mortgage conditions as they are looking for specific details to ensure the building and how it operates meet their requirements. Here is a list of what documents I would like to see if I were buying a condo:
Meeting Minutes– these are written accounts of all the talk that went on at the condo board meetings. They detail everything the board deals with day-to-day which involves the building or its occupants. I mean everything! These minutes will tell you what work needs to be done and do they have enough funds on hand to complete the work. If there are not enough funds will there be any special levies? Which means each unit may be required to come up with a large sum of money to contribute to any immediately required repairs?
Condo By-laws– govern how the unit occupants are allowed to act. This one isn’t as important to lenders as it should be to you. Make sure the condo bylaws don’t limit your lifestyle as they address restrictions regarding pets, smoking, renting out etc.
Budget/ Financial Statement– Lenders like to see the most recent budget and financial statements as this will show how effectively the condo corporation is managing the building finances. You will see how your condo fees are spent and how much money the condo corporation has in their bank accounts.
Estoppel certificate– the lawyer pulls this closer to your possession date to confirm there are no judgments or lawsuits against the condo corporation that could affect your new purchase.
I hope this didn’t scare you off as I believe condos are a great option for many homebuyers as they can be quite affordable and low-maintenance. If I can stress one thing before buying a condo, it’s to get a professional’s help! This could be a realtor or your lawyer who can help you with the purchase and all of the additional conditions involved when buying a condo.From a financing perspective, just be upfront and advise your mortgage professional ahead of time that you are thinking of buying a condo so we can structure your pre-approval effectively.