6 steps to buying a condo
Condos are more popular than ever, with people of all ages enjoying the many benefits of the condo lifestyle. While buying a condo is similar to buying a conventional detached home, there are a few key differences that need to be addressed. Let's take a look at the steps involved to help you find the condo of your dreams.
1. Save for a deposit
Just like any other real estate purchase, saving for a deposit is the necessary first step. Conventional condo home loans require a 20 percent deposit, which can normally be paid over a few months in multiple installments. If you're able to apply for an FHA loan or another non-conventional mortgage, you may need a much smaller deposit of 3.5-10 percent.
2. Compare mortgages
Before you start hunting for the perfect condo, it's important to research mortgage terms and options. Do you know the difference between fixed and variable interest rates? What about open vs closed mortgages, or the way different payment schedules affect amortization? Whether you want to work with a mortgage broker or directly with lenders, it's important to understand the mortgage landscape and compare products based on criteria that's important to you.
3. Get mortgage pre-approval
Mortgage pre-approval is used to give you an idea of how much money you can access and what interest rate will be available. While pre-approval generally includes a maximum loan amount, available interest rate, and payment estimation, there is no guarantee offered by the lender in question. Having pre-approval allows you to set an accurate budget, however, which makes it much easier to start the house hunting process.
4. Create a working budget
As soon as you have a good estimate of how much you're able to borrow, it's important to create a solid working budget based on your current expenses and forecast expenses as a homeowner.
Lenders work with some well-known qualification ratios, with your monthly mortgage payments not allowed to exceed 28 percent of your gross monthly income, your total housing payments not allowed to exceed 32 percent of your gross monthly income, and your total debt payments not allowed to exceed 40 percent of your gross monthly income.
5. Choose condo type and location
The fun part of the process begins when you start comparing neighborhoods and condo communities. Do you want to buy a resale condo or a pre-construction unit? Where do you want to live? It's important to make these broad decisions early so you can filter your search criteria and make your hunt faster and more efficient. The location of your condo is critical, with different cities and neighborhoods having a huge effect on your quality of life and financial future.
6. Compare condo communities
Once you have a solid budget and clear location preferences, it's time to create a short list and compare condo communities based on important criteria. Do you want to live close to your work or school? Do you need access to reliable public transportation? What kind of amenities are you looking for? How much can you afford for monthly condo fees?
Comparing multiple communities in similar areas is the best way to ensure you make the perfect choice for your needs. While time on the ground is invaluable during this process, you can also benefit by talking directly to condo developers and specialist realtors.