Down payment for the purchase of a condo
Condos are an increasingly popular investment in Quebec, given the significant demographic increase in the last few decades. Urban densification represents a solution for sustainable real estate development and the construction of high density condominium projects is the way to achieve this.
New buyers are faced with a market where condos are an interesting alternative. Since the price of houses is generally higher, condominiums are more accessible. The down payment, which can often be an obstacle to the purchase, is determined in the same way as for the purchase of a house. In fact, the "cash down" for a condo depends on certain parameters that are important to know about.
Is a down payment mandatory for a condo?
Yes, when you make the decision to buy a residential property in Canada, a down payment is mandatory in order to be eligible for financing. This is why people who dream of buying their first home save for months or even years to accumulate the necessary amount.
Sometimes, those who do not have the necessary down payment to buy a condo will ask their relatives or immediate family for a loan to achieve this goal more quickly.
How much of a down payment do I need to buy a condo?
If you know your budget, this can give you a very good idea of the down payment needed for your future condo. As with the purchase of a house, a minimum of 5% of the total purchase price of the property is required to be eligible for a mortgage loan.
5% down payment for a condo
When you choose to put less than 20% down, you must obtain mortgage insurance. In order to be accepted, there are a series of parameters set up by the CMHC that must be respected. The CMHC (Canada Mortgage and Housing Corporation) is in place to facilitate access to property. It collaborates with NPOs, governments and many others to help all types of condo and home buyers every year.
Some examples of criteria to qualify for mortgage insurance include:
- The condo must be located in Canada
- The maximum purchase price or value must be less than $1,000,000
- The 5% down payment is only accepted for a maximum value of $500,000. For any amount that exceeds this threshold, 10% of the excess will have to be paid up front.
- To learn about all the conditions, you can consult the CMHC website.
Certainly the wait will be shorter if we only need a 5, 10 or 15% down payment to buy, but the insurance costs must also be taken into consideration.
Mortgage insurance for condos
By going through the CMHC, fees are added to the condo mortgage payment. Before calling your real estate broker or going to the notary, it is important to do some calculations to find out if you are comfortable with this. The amount of the insurance will depend on the percentage, if you put 15%, it will be less than if you put 5% down.
However, you should take into account that when the mortgage is insured, the mortgage rate may also drop slightly.
Is it better to wait and continue saving or to buy as soon as you have 5%?
This question comes up often and the answer depends on each individual situation. If you are not in a hurry to buy or if you are close to attaining the coveted 20%, you should consider waiting. Also, the nice thing about putting a larger down payment is that your condo payments will be lower.
However, if a person starts from 0 and feels ready to buy, the 5% option can be a very good one. Even though you are increasing your mortgage payments without putting down more capital, you have the opportunity to buy faster than if you wait until you have 20%. A very important point to keep in mind is that when you wait, there is a very good chance the price of the condos will increase by the time you have enough money.
In conclusion, the down payment for a condo is somewhat of a challenge for many, but saving up requires a disciplined approach. However, educating yourself on the subject is just as important and that is why consulting a mortgage broker can be very interesting to get as much information as you can.