There are many ways to make sure your condo purchase experience is a good one.
In competitive markets, like Toronto or Vancouver, purchasing a condo is often the first step on the property ladder. Condos are more plentifully available than houses, usually more affordable, and provide an alternative to rentals for those with down payments. No matter what your long term housing and investment plans are, a condo can help you build equity while providing you with a home. Condos are also a great downsizing option for those looking for a managed property with less day-to-day maintenance.
However, all new condos are not created equal. Luckily, there are many ways to make sure your condo purchase experience is a good one. Here are some questions that you should know the answers to before you take the condo ownership plunge.
Should I buy a new or pre-construction condo?
Buying a new or pre-build condo is a good way to get into the market. It can also give you time to prepare for homeownership, or serve as an investment if you later decide to buy a house or move to another area. Your new build condo may be nearing completion, or you may opt for something with a longer timeline that’s in the pre-construction phase.
A minimum 5% down payment is required on any property that will be your principal residence. If you’re buying the condo as a rental or investment property, that amount increases to a minimum 30% down payment. It’s important to consider the costs in addition to the mortgage including property tax and condo fees when you do your budgeting.
What do I need to consider before buying a new build condo?
There’s many questions to consider before buying a new build condo, especially if you’re considering a new build vs. a pre-built condo. CMHC has a great list of questions to ask around construction specifics, like efficiency, sound proofing, and finishing options.
Key questions about buying a new build condo:
- Does the builder have a good reputation for quality and completing jobs on time?
- Do I need to occupy the building by a specific date?
- What happens if there’s a builder delay? What are my rights if the occupancy date is postponed?
- Is there a builder warranty on the condo? What’s covered?
- Are there any hidden costs like hot water heater or furnace rentals?
- Are the condo fees realistic with the amenities offered? What do they include? How likely is it that they’ll increase after a year?
- Are there any rules within the condo that will be challenging to adhere to?
- Are there any rules within the condo that will be challenging to adhere to? What are the policies for pets, visitors, noise, short-term rentals, Airbnbs, etc.?
What happens if the condo occupancy date is delayed?
When you sign your agreement with the builder, there is a section called the statement of critical dates. This lays out two dates: (1) the outside occupancy date, and (2) the firm occupancy date. If the builder is unable to meet whatever is the earliest of these dates, you may be entitled to delayed occupancy compensation. All new homes in Ontario are covered under a Tarion Warranty, which includes insurance for condo occupancy delays.
What’s an interim occupancy fee, or phantom rent?
During the period between the building being completed and the building being registered, condo buyers may be hit with unexpected holding costs known as interim occupancy fees, or phantom rent. These fees are typically the interest on the outstanding cost of the unit after your down payment and condo fees, and happen before you take ownership or occupy the building. The time period you may pay these fees varies, as builders don’t always have a lot of control over how long the registration process takes, and there can be delays on shipping for important items.
Understanding and budgeting for these costs upfront will save you an unpleasant surprise as you look at moving into your new home. Being prepared financially will save you stress and headaches, so it’s always a good idea to ensure your finances are well taken care of prior to committing.