Condo fees and mortgages

Condo fees and mortgages

What are condo fees? Do they impact the qualification process for a mortgage? With the rise in popularity of condo sales, many clients ask these questions when they are trying to get a pre-approval. Let’s try to explain them.

First, what is a condo fee?

Condo fees consist of the monthly payments collected that cover a resident’s shared expenses for the upkeep of all common areas. Some buildings that are older or that feature a common entertainment and recreational area will have higher fees related to maintenance. In other words, condo fees vary whether the resident moves into an older building, purchases a new condo or a larger, townhouse style property.

What is the difference between acquiring an existing or a new condo?

When you are purchasing a condo in a building that has been built for a while – from an owner who decided to sell his/her condo – you are subjected to what the condominium corporation or board of members responsible for property transactions have already established. This board determines the unit fees, they check the need for repairs, services or even upgrades. For this purpose, they are in charge of establishing a fund which will pay for these expenses.  A percentage of the monthly condo fees goes towards this fund.  As well, most buildings also have a onsite security service, available 24 hours, seven days a week to ensure the safety of the residents.  Common areas will also have housekeeping services. This is the reason why you have an extra monthly payment on top of your mortgage, insurance, taxes and utility bills. 

Is this scenario different if the building is a new one in the process of construction? Usually, before the construction begins, developers begin selling units based on floor plans.  The building usually begins when more than half of the projected units sell. 

Under the 1998 Condominium Act, each condominium corporation is required to have a registered document called a declaration. The declaration is registered by the developer of the condominium corporation at the time that the corporation is legally created. It sets out the common expenses payable by each unit owner, expressed as a percentage of the common expenses for the corporation as a whole. If an individual unit has a one per cent common expense allocation, that means that the unit is responsible for one per cent of the common expenses for the entire corporation for the year, typically payable in equal monthly amounts on the first day of each month.

The common expenses for a condominium corporation are based on a budget that is approved by the corporation’s board of directors, often with the assistance of the corporation’s property manager. Typically, two or three months before the end of a fiscal year, the board will discuss the next year’s budget and distributes to each owner a notice setting out each unit’s contribution to the common expenses for the coming year. Common expenses include utilities, shared facilities, reserve fund, service and maintenance, repairs, administrative costs, and onsite personnel. 

If you want to know more about condo fees and their impact on your monthly expenses and mortgage approval, we, at The Costa Group, will be happy to sit down with you and discuss it further.