Financing the purchase of your first condo home is no small task. It will take cash for a down payment, whether from your own savings or up to $25,000 from your RRSP, or a blend of both, plus a substantial income in order to afford the monthly payments that come with home ownership. It is still possible to buy without a down payment, but to qualify for that requires an even larger income and finding a co-operating lender; I don’t recommend it.
Some lucky first-time buyers are able to buy a condominium home in large part or entirely with cash, thanks to a generous gift from older family members or perhaps from an inheritance or another windfall. Most Canadians, though, save up or are helped by parents to assemble a down payment of 5% of their planned purchase price, which lenders will limit to roughly 3.5 times your gross family income. If you earn $65,000 per year, for example, and your partner earns $45,000, the $110,000 family income leads to a condo purchase limit of $385,000, which I'd round down to $375,000. The 5% down payment on that would see you coming up with $18,750, and I'd round that up to $20,000 to cover the cost of a lawyer and incidentals. Few can do it, but coming up with a 10% down payment would save money on the cost of mortgage insurance.
Your purchase-price ceiling could be higher if you have a larger down payment, and lower if you already carry debts. There are many on-line mortgage sites that will calculate a borrowing "pre-approval" amount, but I'd work through a mortgage broker for more accurate guidance. Before shopping you want to know your purchase-price ceiling, your monthly mortgage cost, then your total housing cost by adding in estimated condo contributions, property tax and any utility costs (condo townhouse utilities are usually separate from condo contributions), and then decide if you’re content to carry that total monthly expense. You might choose to lower your purchase-price ceiling below what the lender is willing to fund.
When the first-time buyer analyses these numbers it will become apparent that buying a condo home costs more than renting a suite or a townhouse. But permanent renters never end up owning anything, are subject to the maintenance standards of the landlord (or his lack of standards), and could be asked to move at any time. So you’ll pay more to become a condo apartment or townhouse homeowner, but you’ll have a nicer place in a better building, never be told to move, and some day you’ll live mortgage-free.
First-time buyers should always have a frank talk with their parents and grandparents about their possible contributions. Grandma won't likely give you money for world travel, but might be pleased with your sound investment plans and contribute toward the purchase of your first home. If you're shy to raise it, say that your Realtor advised you to ask, or perhaps offer a copy of this column.
Some people won't easily qualify for a mortgage even if they're earning a good income. If you're self employed, newly hired, paid on commission or are living down a bad credit history, lenders may not qualify you for a few months or years. In some of these situations a mortgage broker might help to obtain a mortgage, but at a higher interest rate. An alternative would be to look for a condo home with an assumable mortgage, perhaps combined with partial "vendor take-back" financing. Not all home sellers will consider such a proposal from a buyer, but in some circumstances it’s the right solution for both the buyer and the seller.
Jointly purchasing a first home with a parent or a friend is an option as long as a real estate lawyer draws up an agreement between the buyers in advance of their home purchase. For two young people who get along, a spacious two-bedroom apartment or townhouse home with double en-suite bathrooms and perhaps even two parking stalls could well be a shared alternative to two starter bachelor suites.
“Sweat equity” is a term that’s recognized by CMHC and by lenders who could fund the purchase of a run-down or perhaps foreclosed-upon property, giving a hard-working buyer credit for the value of their labour improving the property. This option is for those who have more skills than money, and energy to invest. Energetic and creative young people can turn this approach into a series of upgrade-and-sell transactions that translate into equity and even wealth, assisted by the fact that there’s no capital-gains tax on the sale of one’s own home.
Calgary Condominium Directory
