Condo Mortgage: Financing for Attached Housing

What is a Condo Mortgage?

A condo mortgage is a way to finance the purchase of an attached home. It can be harder to qualify for a condo mortgage, and there are extra fees to pay.

Black woman, taking care of plants in her new condo.

In many ways, the process of getting a mortgage is no different whether you’re buying a house or a condo. A “condo mortgage” is really just a mortgage.

But buying a condo does require a few additional considerations that don’t apply to other kinds of homes. Here’s what you need to know about condo financing, including how to qualify for a mortgage and the extra costs to prepare for.

How a condo mortgage works

When getting a mortgage for a condo, you’ll be working through the same decisions you would if you were buying a house: choosing a mortgage term and amortization schedule, weighing fixed vs. variable rates and setting the frequency of your mortgage payments.

Condo buyers are also bound by the same minimum down payment requirements as home buyers:

For homes priced $500,000 or less: 5%.
For homes priced between $500,000 and $999,999: 5% on the first $500,000 and 10% on the amount above.
For homes priced $1 million or more: 20%.

Debt service ratio calculations for condos

A major factor to consider when financing a condo is how your various debt service ratios are calculated.

Your gross debt service ratio, or GDS, evaluates your monthly housing costs as a percentage of your gross monthly income. When buying a detached house, housing costs include your future mortgage principal and interest, utilities and property taxes. When buying a condo, housing costs also include 50% of your monthly condo fees are included in the GDS calculation.

Your total debt service ratio, or TDS, for a condo includes your total housing costs, plus all other debt payments and the other 50% of monthly condo fees.

The Canadian Mortgage and Housing Corporation, or CMHC, will only insure mortgages with up to 39% GDS and 44% TDS. However, applicants with no more than 32% GDS and 40% TDS have a better chance of passing the mortgage stress test.

» MORE: What is mortgage insurance?

Is it harder to get a mortgage for a condo?

Depending on your cash flow, it can be more difficult to get a condo mortgage due to the extra fees that will be included in your GDS and TDS calculations. Condo fees may seem like a pain, but it’s more of a tradeoff: owners of detached houses have similar — possibly higher — expenses in the form of maintenance and repairs.

You can always run some numbers into a mortgage affordability calculator and see how much a condo mortgage might cost you. Just remember to put those condo fees in there.

Additional fees

In addition to having a down payment, appropriate debt service ratios, and the ability to cover various costs associated with home ownership, if you’re buying a resale condo, you’ll need extra cash on hand to acquire and review the condo corporation’s financial statements and status certificate. These documents are important for demonstrating solvency and healthy management of the building as a whole.

For new or pre-construction condos, you may also see charges for any of the following, depending on the province you are in:

Development charges.
GST or HST on the sale price.
GST and PST or HST on appliances.
Warranty program enrollment.
Utility hookup.
Landscaping.
Two months’ common expenses to build a reserve fund.
Occupancy fees (payable if you move in before the condo is registered).

» MORE: How to choose a mortgage lender

How to shop for a condo mortgage in Canada

Applying for a condo mortgage is just like applying for financing to buy any other home: several steps and plenty to consider. Here are a couple of suggestions to make the process go more smoothly.

Shop around

It’s important to compare mortgage rates from several lenders. The first offer may not include the best terms or mortgage interest rate, and even a small reduction in rate can mean thousands of dollars saved.

If you’d prefer help while comparing offers, consider seeking out a mortgage broker. These financing professionals usually earn their commission from the lender, so you typically won’t pay directly for their services. Brokers are generally considered to be impartial and will shop around to get you the best mortgage for your needs. They can also negotiate for you and try to improve a lender’s offer.

Get pre-approved

Your mortgage broker or lender of choice can help you get pre-approved for a mortgage. Getting pre-approved gives you a realistic estimate of what the lender is willing to let you borrow. Having financing lined up can make your offer more attractive to sellers, which is important in a hot market.

Down payment requirements for condos are the same as they are for houses. You’ll have to put at least 5% down for properties worth $500,000 or less and at least 20% down on properties worth $1 million or more. For properties worth between $500,000 and $999,999, you’re required to put 5% down on the first $500,000 and 10% on any amount above that.

Not really. When buying a condo, you’ll be evaluated based on your credit score, down payment savings, income and debt service ratios — just like you would when buying a house. With condos, your debt service ratios include a building’s estimated monthly maintenance fees. If those fees are high, they could make qualifying for a mortgage more difficult.

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