Posted by: MonsterMortgage.ca
You wouldn’t be the first visitor to the MonsterMortgage.ca website looking for a mortgage on a condo you’ve set your heart on. You also wouldn’t be the first would-be buyer to dismiss or outright forget another monthly fee that can impact your purchase – condo fees.
In addition to property taxes, utilities and insurance, condo fees are one of the financial commitments required from you each month when you take ownership of a condominium unit.
Sometimes referred to as strata fees, your condominium dues are an obligatory monthly fee that you make to the condo corporation running and managing the day to day activities of your building. These fees vary from condo to condo and can cover the following, among other things:
The Condominium Reserve Fund – Part of your monthly condo fee will be contributed to a reserve fund that the condo corporation utilizes to cover services such as the upkeep of the common areas, such as the gym or the garage or towards trash disposal and snow removal in the winter time.
The fees you will pay on your condo dues will vary from property to property. The average price for condo fees is approximately $0.59 for each square foot of your condo unit. This number can be higher or lower depending on the age of your property, the amenities offered on the premises among other things.
Using the $0.59 per square foot number, it is easy to see how a condo unit can require an additional $300 to $800 each month.
Have you planned for these condo fees?
Mortgage lenders are going to use what is called the gross debt service ratio (GDS) when calculating whether or not you can afford a particular condo unit. You need the GDS ratio to come in at 32% or lower.
Here is the formula for GDS ratio:
Your Mortgage Payments for the year + 50 per cent of condo fees for the year + your estimated Heating Costs for the year + Property Taxes for the year / Your Annual Income
Here’s an example of a 600 square foot condo for $300,000. The condo fees are average and come in at $0.59 per square foot. Let’s assume that your household earns $80,000 per year and will be putting down 5 per cent towards the condo purchase. You have decided to take a 5 year mortgage at a fixed rate of 2.54%:
Your yearly costs are as follows:
Mortgage (including default insurance) – $15,984
Property Taxes – $2,350
Condo Fees – $4,248
Utilities – $600
Total Costs – $22,582
Annual Income: $80,000
GDS ratio: 28.2%
In this case, you qualify within the GDS guidelines!
You can see in the example above that the condo fees, totaling approximately $4,250, certainly have an impact on the yearly costs of the condo – almost twice as much as the property taxes do.
What else do I have to look out for?
You may already be thinking, why not look for the property with the lowest condo fees each month? Condo fees are vital to the reserve fund of the condo corporation; without sufficient reserve funds, any large improvements or repairs won’t be able to take place. In such a scenario, the owners of each unit may be levied a special assessment. A special assessment may cost thousands of dollars, and may bring about questions of your condominium board. Your condominium declaration will provide to you an idea of how much of cost you would share in the case of a special assessment. Condos with a large reserve fund will typically not have to levy any special assessments from its unit owners.
Before the purchase of any condominium, a status certificate should be produced from the condo corporation. This status certificate will contain financial details outlining the overall financial health of the condominium as well as whether or not there are any outstanding law-suits against the corporation.
Are you looking to buy a condo in the near future? Have questions about the affordability of a unit? Fill out the form above and speak to a MonsterMortgage.ca Mortgage Expert today!