Steps to buying a condo
Are you thinking about buying a condo? Do you understand the steps involved? While purchasing a condominium doesn't have to be difficult, new buyers often feel overwhelmed by the choices they have available. From making a budget and saving for a deposit through to comparing buildings and mortgage providers, let's take a look at the individual steps you need to take to become a new condo owner.
1. Analyzing your finances
Before you start hunting for a unit, you need to have a basic idea of how much you can afford, both now and in the future. The best way to do this is to think like a bank, by comparing your deposit amount and income with your existing debts and credit scores. Coming up with an accurate budget can be challenging, with things like property taxes and insurance needs to be added to the purchase price and condo fees.
While every situation is unique, there are some well-known qualification ratios used by lenders. Your monthly mortgage payments should not exceed 28 percent of your gross monthly income. Your total housing payments should not be more than 32 percent of your monthly income. And your debt payments in total should not exceed 32 percent of your gross monthly income.
2. Getting a deposit ready
Your down payment amount will also have a huge effect on the type of mortgages you can apply for, with a 20 deposit percent standard but as little as 3.5-10 percent possible for Government loans such as Federal Housing Association (FHA) loans in the United States or those insured by the Canada Mortgage and Housing Corporation (CMHC) in Canada. The size of your deposit will have a direct effect on your home loan options and the interest rates available to you.
3. Hunting for a mortgage provider
You can't buy a condo until you get a mortgage, with home loans available from a number of traditional and non-conventional lenders. If you're thinking about buying a condo in the US with an FHA loan, it's important that the building in question is included on the FHA-approved condominium list. In Canada, CMHC insurance may be required. You have the choice to deal with a mortgage broker or directly with lenders themselves, with brokers able to compare and contrast multiple home loans to help you find a mortgage that's perfect for your needs.
4. Comparing home loans
When comparing mortgages and mortgage providers, there are lots of factors to consider, including the interest rates on offer, the deposit amount, and the terms of the loan. While fixed-rate loans provide you with the security of the same interest rate for the entire term of the loan, variable rates can be more affordable if interest rates drop in the future. It's also important to understand the difference between open and closed mortgages, with an open mortgage allowing you to make both early and lump sum repayments in order to pay off your principal sooner.
5. Comparing locations
Once you have a good idea of how much you can afford, it's time to start comparing locations and develop a short list of condo buildings. What kind of neighbourhood can you see yourself living in? How close do you want to be to the action? When comparing condo communities, you need to take both economic and lifestyle factors into consideration. Having a basic understanding of market data is essential in order to see how prices have changed over time.
Spending some time on the ground is essential to get a vibe of the neighbourhood, so walk around, visit the local cafes, and see how safe you feel at night time.
6. Hunting for a condo and closing the deal
A good location is not enough by itself, you also need to compare each condo community with a fine tooth comb. How much are the condo fees? How good are the amenities? Are you likely to get on with the condo board?
Once you've found a condo that's perfect for your financial and lifestyle needs, you still need to close the deal. Don't forget building inspections, make a cautious but confident offer, understand the legal proceedings, and take a deep breath while you wait to see if your offer is accepted and how much the final settlement costs will be.