Everyone knows you need a downpayment and a mortgage in order to buy a condo. But that’s not all.
You need to be prepared. You need to know what you’ll have to pay for, and when. It’s not as straight forward as buying resale, but it can actually be easier and more affordable. Follow the money trail to owning a condo:
- Mortgage preapproval
- Closing costs
Mortgage preapproval: How much do you think you can afford to spend on buying a condo? While you may be able to come to a number that works with your budget, the banks can do a preapproval so that you can know exactly how your payments work and how much you can spend. You may choose to spend less and not max out your budget by buying at the top of your preapproval. But, especially if you’re buying preconstruction and know your moving date is a few years off, you may want to consider two factors: 1) In a matter of two or three years, interest rates may increase. It will cost more to borrow the same amount of money. 2) In that same time, you will likely be earning more through career advancement and improve your budget.
While you cannot actually secure your mortgage until you close, interest rates are starting to rise. If you’re buying pre-construction now, you can lock into today’s interest rates now with the builder’s bank partner. If rates go down by the time you close, the bank will offer you the lower rate, but if they rise, as they’re just starting to do, you will be able to enjoy considerable savings every month!
Downpayment: You need a lump sum of money to pay for your deposit. Some developers offer incentives like 5% down, others have a deposit structure that may spread payments out over many months or even years. This gives you ample time to get your full downpayment together and pay it off in smaller, more affordable chunks. Ultimately, you should have 20% or more of the purchase price as the downpayment. It’s entirely possible to do less than a 20% downpayment, but you’ll have to get mortgage insurance, which adds to your total costs.
Representation: You may want to use a realtor to help you make your purchase, they’ll be able to advise you throughout the process, and they’re a free resource – the realtor gets paid by the developer, not you. You’ll also need a lawyer to close the deal, so count on legal fees. Your realtor will also let you know, there is a 7 day cooling off period where you can change your mind, so make your purchase with confidence.
Closing costs: There are always development charges, levies and expenses to be finalized when you close. Some of these are paid out in cash, others are rolled into your mortgage. You can expect to pay anywhere from $5,000 to $20,000 – though they can be higher if expensive levees are passed on to you. You’ll find out an exact number when you close in a statement of adjustments, and it’s good to be prepared. Investors will have to pay GST – which is a business expense, though end-users generally have it rebated back so it’s not an additional expense
Insurance: You will need insurance for your suite in order to close your mortgage.
Utilities: You will need to hook up your utilities and may need to pay deposits and activations depending on the service. Many developers offer a few months, and even up to a year of free services like Internet and cable to defray the initial costs.
Budget properly and the money trail will be easy to follow in installments, and lead to owning your own home, and a great investment.
This article was sourced from TheWex.ca