Bought a condo recently? Congratulations! If you’re one of the nearly half of Canadians who always uses a budget, chances are you’ve already started to think about how your monthly expenses might change in this new living situation – especially if you had previously been renting or living at home. While in many cases condo living can end up being more affordable than purchasing a house, there are still particular financial considerations to keep in mind when redesigning your new budget.
Here are the main categories to consider adding to your budget, before, during and after the purchase of your condo.
How to Budget for Buying the Condo
Toronto condo sales jumped by nearly 20% last month, which means more and more people are going through the process of saving and making a down payment, and securing a mortgage. Unfortunately, the puck doesn’t stop there, so to speak, because there’s a lot more to buying a condo than simply putting down cash and taking out a loan. For starters, everyone – no matter where you live in the country – needs to save and pay the closing costs. From land transfer taxes, to title insurance, legal fees and more, your closing costs will add up to between 1.5% and 4% of the price of your condo – and most of them need to be paid for with cash on closing day.
Beyond that, you may have to budget for a couple other things when buying a condo, but it depends on whether you buy a pre-construction or resale condo. If you go the pre-construction condo route, you may find yourself in a situation where your unit is done before the rest of the building is. In Ontario, you can probably still move in, but you’ll need to pay the builder occupancy fees for each month you’re there. The fees are just the monthly interest payments on the balance of your purchase price (because you can’t take out a mortgage until the building is done and registered). So, you wouldn’t be making a mortgage payment yet, but would instead be paying “rent” to the builder. If you’re buying resale condo, on the other hand, one of your closing costs may include a prorated amount of prepaid condo fees or prepaid property taxes. If the previous condo owner had prepaid their condo fees or property taxes for the entire year, you would have to pay them back a prorated amount for every day you will be the condo owner instead.
How to Budget for Living in the Condo
Of course, the first thing you’ll need to budget for as a condo owner is your mortgage payment. To go along with that, however, you’ll also need to consider your property taxes. Every year, your municipality will assess the value of your property, then multiply that by its property tax rate (it’s different in every municipality across the country) and send you a bill. Most lenders will pay your property taxes for you, then divide the annual amount by how many mortgage payments you make each year and add it to your payment. If you don’t go that route, though, you’ll want to set aside money each month so you can pay your municipality directly.
Now, before you buy a condo, it’s important to think about the life you’re going to live in that building – with all its other residents – and what that’s going to cost. Chances are, while condo shopping, you looked at what the condo fees were like from building-to-building, and what they did and did not cover. (At least, we hope you did!) Condo fees are priced by the square foot, so the larger your unit is, the more expensive your fees will be. Generally, condo fees will cover the maintenance for all common elements (amenities, elevators, lighting and landscaping). Sometimes, they’ll even cover a few (but not all) utilities. For example, some buildings cover your water and/or heat, while others do not. Most buildings don’t cover things like internet, phone and cable, so you’ll need to keep those as a separate item (like utilities) in your budget.
One thing to note about condos fees while budgeting is that it’s very likely this item on your budget will increase – and it can happen at any time. (A 2012 poll found that 68% of condo owners in Toronto, Vancouver and Montreal didn’t know this!) This is particularly true of relatively new condos, whose boards or management companies may find themselves readjusting budgets for the building, once the true costs of keeping the place clean, running, and safe reveal themselves in the first and second years of management. It’s also true of buildings with advertised fees that seem preternaturally low. If it sounds too good to be true, it likely is.
How to Budget for Maintaining the Condo
In an ideal situation, the condo fees you pay each month would cover all major repairs and renovations your condo building will go through during the time you live there. By provincial law, however, only a certain portion of a condo corporation’s yearly budget must go into what’s called a reserve fund. For condos in Ontario, that’s 10%, and the fund is meant to pay for all the big jobs you’d end up paying for yourself if you owned a freehold home: roof repairs, lawn maintenance, plumbing emergencies, etc. This doesn’t mean, however, that you shouldn’t plan for a rainy day. Saving towards a little reserve fund of your own is important, since your condo’s may not cover every type of repair possible for the building, or may find itself in an emergency situation where the fund can’t cover a major repair – which then requires owners to pitch in the difference. You’re also responsible for everything inside your unit. The reserve fund, for example, won’t cover the cost of replacing a rickety stove, or broken bathroom tiles. Be sure to check your condo certificate to determine which elements of your unit you’re responsible for maintaining.
A second budget item to keep in mind is home insurance. Unlike freehold ownership, home insurance is not required by law for condo owners. Many banks, however, may include it as a requirement on mortgage applications and, for a few reasons, some type of condo insurance is worth paying for regardless. While your condo corporation’s insurance may cover unforeseen expenses relating to things about the building that are commonly owned, this almost never applies to your own personal assets, and likely won’t cover instances of a faulty element of your unit damaging another. (And in cases where it does, you may still be on the hook for large deductibles.) A leaky pipe flooding into your downstairs neighbour’s roof can get expensive, so it’s best to protect yourself and get some insurance in your back pocket.