 In this
chapter I’ll set out some basic calculations that you may want to use that will help
you determine exactly how much condo, loft or townhouse you can afford.
Buying a condo involves many more financial considerations than many first time buyers
think! Some of these expenses are one-time costs and others are ongoing commitments.
In addition, there are supplemental costs that you may not be aware of or that you may
forget to factor into your calculations. Be sure to remember the “supplemental
costs”, such as window coverings, upgrades, etc.
THE DOWN PAYMENT
Providing you have a down payment equal to or greater than 25% you may qualify for a
conventional mortgage loan which does not require mortgage insurance.
A minimum down payment of 5% is required for a high ratio mortgage. These types of
mortgage loans - dealing with amounts in excess of 75% of the value of the condo - are
required to be insured against default.
The Federal Government and some Provinces offer incentive programs for homebuyers. I
advise you to consult an investment or tax advisor regarding the value of these plans for
your particular circumstances.
THE MORTGAGE
A mortgage is security for a loan on the property you own. It is repaid in regular
mortgage payments that are blended payments. This means that the payment includes the
principal (amount borrowed) plus the interest (the charge for borrowing the money). The
payment may also include a portion of the property taxes.
Renovation Costs
You may find an older condo that you can fix up (“fixer-upper”) if you  are so inclined.
One general rule is that renovations always take longer, and costs more than you think.
You also must get approval from the condo board for all renovations. They normally have
the minimum acceptable standards available at the management office.
HOW MUCH CAN YOU AFFORD?
The best and quickest answer to this question is that it depends on a number of factors.
The most important are your gross household income, your down payment and the mortgage
interest rate. Lenders also consider your assets and liabilities. Your own lifestyle and
debt comfort zone also become factors.
Once you understand these variables, you are in a position to examine all your options.
Use the table (below) and the Affordability Guide on the next page to get an idea of the
maximum condo price you can afford and the maximum you can afford to pay in monthly  costs.
Lenders follow these two simple rules when determining how much you can afford in monthly
housing costs:
Affordability Rule # 1 - Your monthly housing costs should not be more than 32% of
your gross household monthly income. Housing costs include monthly mortgage principal and
interest, taxes and heating expenses - “P.I.T.H.” for short. Uniquely, with
condos this sum also includes half of monthly condominium fees.
Lenders add up these housing costs to determine what percentage they are of your gross
monthly income. This figure is your Gross Debt Service (GDS) Ratio.
Affordability Rule # 2 - Your entire monthly debt load should not be more than 40% of your
gross household monthly income. This includes housing costs and other debts such as car
loans, and credit card payments. Lenders add up these  debts
to determine what percentage they are of your gross household monthly income. This figure
is your Total Debt Service (“TDS”) Ratio.
Based on these ratios, lenders will advise you of the maximum condo price they think you
can afford.
Always keep in mind that most condo buyers today keep their debt ratios comfortably below
the maximums prescribed above. The lower your debt load, the more affordable your home and
lifestyle remains.
AFFORDABILITY GUIDE
Use these important formulas to determine how much you can afford to pay for your housing.
This is how Lenders determine the maximum monthly costs you can carry. Review these
examples to see how you can settle on the best condo price for you.
Maximum monthly housing costs you can afford
Gross Debt Service Ratio (“GDS”)
Your gross monthly salary * $__________
+ your spouse’s gross monthly salary $__________
+ Other monthly income $__________
Total (A) $__________
X 32%
= Maximum monthly housing cost that you can afford (B) $__________
This maximum monthly payment includes principal, interest,
taxes, heating (P.I.T.H.), and 50% of the condominium fees.
* Gross salary is income before taxes.
Example:
Terry’s gross monthly income is $2,500 and Ali’s is $2,000 giving them a total
monthly income of $4,500. They should pay no more than $1,440 ($4,500 x 32%) for their
monthly housing expenses.
Maximum monthly debt load you can afford
Total Debt Service Ratio (“GDS”)
Total monthly income A $__________
x 40%
= Maximum monthly debt service load you can afford (C) $__________
- Monthly car payment $_________
- Monthly loan payment $_________
- Monthly credit card/line of
credit payment $_________
- Other monthly payments $_________
= Monthly income left for housing (D) $__________
If the condo you want costs more per month than you can
afford right now (D), consider these strategies: lower your expectations and buy a cheaper
condo; lower your non-housing debt obligations; and/or raise a larger down payment.
Example:
Terry and Ali have a gross monthly income of $4,500. Their total debt load should not
exceed $1,800 ($4,500 x 40%). They have a monthly car payment of $300, a student loan of
$250 and credit card payments of $200, for a total of $750 in non-housing debt payments
each month. That means they would have no more than $1,050 available for monthly housing
payments ($1,800 - $750). That is lower than the $1,400 suggested by their Gross Debt
Service calculation (B).
Maximum condo price you can afford
It all depends on how much your down payment is and how much you can carry in monthly debt
service. And that depends on variables such as mortgage rates, your debts and monthly expenses, and
personal preferences.
Example:
Terry and Ali have a down payment of $30,000. They want a conventional mortgage with 25%
down, so they estimate their maximum home price at $120,000.
That would leave them a mortgage of $90,000. At 8% interest, amortized over 25 years that
means monthly mortgage payments of $687.*
Add monthly property tax installments of $180 and monthly hydro bills of $140. Their total
monthly housing costs will be $1,007. That is just below the maximum of $1,050 allowed
according to their Total Debt Service ratio calculations.
 That is too
close for comfort for Terry and Ali. What if mortgage rates go up when it’s time to
renew? They decided to look for a condo priced at a maximum of $100,000.
That would leave them with a $70,000 mortgage and monthly payments of $535,* plus lower
taxes of $150 and hydro costs of $100. Now their total monthly housing costs will be $785.
That makes their Total Debt Service ratio 34% instead of the maximum 40% And that gives
Terry and Ali a sense of financial comfort.
* Figures are rounded. |
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Other
costs to be aware of when buying
This list shows the possible extra costs that may be involved in buying your condo. Some
are one-time costs while others, such as condominium maintenance fees and property
insurance, will be ongoing monthly expenses. The good news is that not all of these costs
may apply in your circumstances.
GST (“Goods & Services Tax”)
The 7% GST applies to new condos, lofts and townhouses. However, there is a rebate to a
maximum of 2.5%, if your condo costs less than $450,000 (no rebate over $450,000).
With new condos, the GST is included in the price with the purchaser signing over the
rebate to the developer. This can  cause
some problems in the event that you are not planning on using the unit as your principal
residence so be sure to get proper advice and never just walk into a sales site without
your own agent!
There is no GST on resale (existing buildings where an owner is selling their suite)
unless the home has been substantially renovated, and then the tax is applied as if it
were a new home. In some provinces, the GST has been replaced by a Harmonized Federal and
Provincial Sales Tax known as the HSAT.
Also in some other provinces, provincial taxes may be applicable.
Appraisal Fee
If your loan is not insured your lender may require a property
appraisal at your expense. We don’t see these in condos very often any more as the
major lending institutions are already familiar with condo developments but infrequently,
a mortgagor may require one.
An appraisal for mortgage purposes will probably run you $150 - $250. Always confirm
prices before jumping in as costs may vary due with location and complexity.
Property Taxes
They say that taxes and death are the only certainties in life. If you have a high ratio
mortgage, your lender may require that you have your property tax installments added to
your mortgage payment.
Property Insurance
This insurance covers the replacement value of the structure of your condo and its
contents. Your lender will insist on this because your condo is the security for your
mortgage.
 Prepaid
taxes or utility bills
You will have to reimburse the Vendor (seller) on a prorated basis if some bills have been
prepaid by them before the closing date.
Land Transfer Tax
This applies in most provinces in Canada. It varies as a percentage of the property’s
purchase price. Refer to “Definitions“.
Service Charges
You will be charged a fee to hook up new services and utilities, such as your telephone,
cable, DSL, at your new condo.
Lawyer Fees
Even the most straight forward condo purchase requires a lawyer to review the Offer of
Purchase and Sale, search the title, draw up mortgage documents and tend to the closing details.
Many times I have purchasers of new (presale) condos tell me they are not getting a lawyer
involved until the closing (usually a couple years down the road). Don’t fall into
this trap! All the documents relating to the sale of a new condo are written by the
developer’s lawyer and are definitively “One-Sided”! Just like having your
own Buyer’s Agent is critically important, having your own lawyer is comparably
important. They will negotiate changes in the wording of the documents to protect you
against open-ended potential future expenses such as levies, legal costs, etc. Be
sure to always confirm the total cost up front!
Mortgage Loan Insurance Premium and Applicable Fee
High-ratio mortgages require mortgage loan insurance. The insurance will run you between
0.5% and 3.75% or the amount of the total mortgage (additional charges may apply) and can
be included in the mortgage. The application fee will range from $75 to $235 depending
upon how the lender processes your application. (best to consult your lender for full
details prior to setting out on your buying journey.
Mortgage Broker’s Fee
A broker may charge a fee to find you a lender. This is negotiable and something to not
give into easily.
 Moving Costs
The cost of professional movers or a rental truck if you move yourself, should be factored
in up front. Even if friends are helping you move (you might want to factor something for
breakage) you still will buy lunches, and refreshments (case of beer usually works for
friends).
Fees for a professional mover can range from $50 - $100 per hour for a van and three
movers. These costs may be 10% - 20% higher at the end of the month and in the summer so
plan your move. If you can move mid month you can save money and hassle.
Status Certificate
A certificate that outlines the financial condition of the condo corporation that you are
buying into. Fees are around $100 plus GST as set out in the Condo Act. The Status
Certificate is signed by one of the Board of Directors and shows the amount of money in
the Reserve Fund and discloses any existing or threatened litigation.
Condominium Fees
Condominiums charge monthly fees for common-area maintenance, such as grounds keeping and
carpet cleaning. Fees range widely depending on the type of structure.
Fees are reflected by the size of your suite, amenities included in the building,
(concierge and swimming pools are maintenance hogs), whether hydro is included and the
total number of units in the building (the more owners the smaller the portion of costs).
Home Inspection Fee
Home inspections are rare with condos as there are no rafters and/or foundation to
inspect. If you are buying a “fixer-upper” you may want to consider having an
inspector do an inspection but in condos there really is not a lot they can look at.
I’ve only seen a couple in all my years of Toronto condo experience and all I saw
them do for their $300 was to check the electrical outlets which you could do yourself
with a lamp.
Renovations and Repairs
Carpets to hardwood can run you real money. Be sure to factor in all renovation costs
required to bring your condo up to the standards that you envision it as.
NOW THAT WE HAVE CALCULATED YOUR AFFORDABLE PRICE RANGE YOU CAN USE THESE WORKSHEETS TO
HELP YOU EVALUATE THE TOTAL COST OF YOUR NEW CONDO
Since purchase prices affect other costs as well, use these worksheets to help you
establish the exact cost of differently priced condos in your price range. This
calculation includes closing costs. Some costs can be included in your mortgage loan
although most come out of your pocket.
HOME PURCHASE COST ESTIMATE
Address: __________________________________
Purchase Price $ __________
GST/HST (if applicable) $ _________
House insurance $ __________
Legal fees & disbursements $ __________
Land transfer tax $ __________
Appraisal fee $ __________
Status Certificate $ __________
Furniture, appliances, drapes, etc. $ __________
Home inspection fee $ __________
Interest adjustments $ __________
Lawyer’s fee $ __________
Condominium fee $ __________
Mortgage broker’s fee $ __________
Mortgage Loan Insurance Application Fee * $ __________
Moving expenses $ __________
Property taxes (adjustments) $ __________
Renovations/repairs $ __________
Service hook-up fees $ __________
Utility Bills (adjustments) $ __________
Other $ __________
Total estimated cost $ __________ * can be included
in your mortgage
Monthly Expense
Condo Fees $ __________
Car loan/lease $ __________
Line of Credit $ __________
Car insurance & license $ __________
Car repair and service $ __________
Car gas & oil $ __________
Public transportation $ __________
Clothes/personal/sundry $ __________
Groceries/lunches/eating out $ __________
Child care $ __________
Life Insurance $ __________
Electricity/hydro (non-heat) $ __________
Water $ __________
Telephone $ __________
Cable TV/video rental $ __________
Entertainment, recreation, movies, sports, etc. $ __________
Beer, wine, liquor, cigarettes $ __________
Newspapers, magazines, books $ __________
Home maintenance and repairs $ __________
Home insurance $ __________
Furnishings/consumer goods $ __________
Savings (bank account RRSP’s) $ __________
Charitable donations $ __________
Charge accounts/credit cards $ __________
Other loans/payments $ __________
Total monthly lifestyle expenses $ __________
Payroll deductions:
Income Tax $ __________
Benefits/other $ __________
Total monthly expenses $ __________
Monthly income $ __________
Subtract: total monthly expenses $ __________
Amount left for housing costs (PITH) * $ __________
* principal, interest, taxes, heat
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