August 21, 2019

Buying a Condo

Educate yourself or consult expert about purchase
By Marty Hope, Calgary Herald September 24, 2011

Calgary has been ranked the most affordable city in Canada in which to buy a home – and affordability is typically the reason given for someone to buy a condominium.

But potential condo purchasers should have their eyes wide open and fully understand what they are getting into before signing a purchase agreement.

It’s all about doing homework regarding condo fees, reserve funds and lender requirements – as well as seeking affordability.

If you’ve never owned a condo before, take some time to educate yourself or find a professional to help you through the wads of paperwork that come with buying that apartment or townhouse.

Condo fees are taken into consideration by mortgage lenders in determining if a borrower qualifies for a mortgage.

We now have access to fiveyear money at 3.49 per cent, so the qualification is a bit higher. Using this rate, prospective purchasers could afford a non-condo property at a price that is close to $20,000 higher in value than if they purchased a condo property with monthly fees of $200.

As a result, if you’re looking for a higher-priced condo – with high fees – because you felt that was all you could afford, you should talk to a mortgage expert to ensure you understand what you can qualify for in terms of condos versus single-family homes.

It’s also vital that you understand just what the condo fee covers, which varies from property to property.

It’s likely that the higher the fee, the more likely it will cover more than just cutting grass and shovelling snow.

In some cases, the condo building might have a pool or fitness facilities – and that will mean more fees.

While the pool or fitness room is nice to have, seriously consider if they will be features you will use. Otherwise, you might be better looking at a property with fewer amenities, but more affordability.

Then there is the reserve fund. If a condominium corporation doesn’t have one, think seriously about looking elsewhere.

If there is a fund, know its status.

Condo fees are partly used to establish a reserve fund for a condo building, with the purpose of saving cash for long-term replacement of major components as they wear out, such as the roof or mechanical systems.

Prospective buyers should understand the maintenance program that has been established for the building and determine if the reserve fund is sufficient to handle it.

If it isn’t adequate, there will either be an increase in fees somewhere down the road and/or a special assessment.

What many homebuyers may not know is that there is no option when it comes to these condo fee increases or special assessments – they must be paid. So, even though such expenses do not affect the initial qualification for a mortgage, they will impact the affordability.

Most buildings get a reserve fund study done periodically, so check to see what the experts say about the adequacy of the fund.

There may be some major upgrade planned for the project – and this, too, will be funded from the reserve, a special assessment or increase in fees, or some combination of these.

Planned major expenditures are usually included in the minutes of the annual meeting of the condominium corporation, so it’s a good idea to get a copy of the most recent minutes.

In fact, often mortgage lenders ask for a copy of both the minutes of the last annual meeting and the most recent reserve fund study as they, too, are concerned about the impact on affordability once the mortgage has been funded.

You might also want to look at who is living in the building. Are the majority of the occupants owners or renters?

It’s common for renters to move more often and they don’t have the same long-term interest in the upkeep of the building.

This usually results in higher operating costs for the condominium corporation, with the ultimate impact being higher fees passed on to unit owners.

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