Financing – New Condo FAQ’s
When do I need a mortgage pre-approval when I buy a new condo?
It’s always a good idea to get a mortgage pre-approval before you start looking for a new home. Your mortgage broker can tell you how much you can afford to spend, and what mortgage rate you qualify for. Most provinces have a mandatory “cooling off” period when you buy a new condo that allows you to back out of the deal without penalty. At the very least, you’ll want to get a pre-approval before the cooling off period ends so you can walk away if there are any problems.
What will I need to get a pre-approval when I buy a new condo?
Your mortgage broker will ask you some questions about how much money you make, what assets you have, what debts you have, and how much you have saved for your down payment and closing costs. You might be asked for documents to back up your claims, so be ready to show letters of employment, recent pay stubs, and bank statements.
Will I be able to get a mortgage rate held until closing?
Maybe. Most mortgage brokers can hold a rate for around 90 to 120 days while you look for a house, and sometimes longer. When you buy pre-construction you might be able to get a maximum rate held, but it will be based on your estimated completion date. The longer until your close, the higher the rate will be. The good news is you’ll be able to get the best mortgage rate available at closing, even if it’s lower than what you were pre-approved for.
At what point do I get a mortgage when I buy a pre-construction condo?
You will need to have your mortgage in place in time for closing. We recommend you start the process six months before your expected closing date to leave yourself extra time to find options in case there are unexpected problems.
If I get pre-approved when I purchase a condominium that doesn’t close for 3-5 years, does that guarantee that I will get a mortgage at closing?
No! When you get a mortgage, you need to show that you can pay it back. That means having enough income to make your mortgage payments, pay your taxes, heat your home, and pay your other debts. There are two debt service ratio calculations that apply: gross debt service ratio (GDS) and total debt service ratio (TDS). Your GDS includes your mortgage, taxes, heat, and half of maintenance fees, and can be no more than 32% of your income. Your TDS adds other debts to the calculation, and can be no more than 40% of your income. These calculations are done around the time of closing and there’s no guarantee you’ll be approved.
I am an investor that already owns a principal residence. Is there anything I need to be aware of?
For 1-2 unit non-owner occupied homes, the minimum down payment is 20% (fortunately your deposit payments count toward this). Only half of the rental income you earn from the property counts as income for your debt service ratios, and your total debt service ratio will include the costs of your principal residence. That means if you rent a unit for $2,000 a month, your mortgage lender will only credit you with $12,000 a year in added income (and that’s if you have a tenant secured by your closing date). On top of this, mortgage rates tend to be slightly higher for investment properties in Canada. You’ll also have to report rental income on your taxes, and pay capital gains tax on any money you make when you sell.
I am an investor that already owns a principal residence. How much do I need as a down payment?
The minimum down payment in this case is 20%. Fortunately, your deposit payments count toward this.
Is there a minimum square footage required to get financing for a new condo?
Lenders want to know the property can be sold relatively easily. Typically anything smaller than 600 to 700 square feet will be more difficult (but not impossible) to get a mortgage for.
What are some banks will finance my small studio suite?
Because every person, property, and bank is different, there’s no one answer to this question. Rather than dealing directly with your bank, we recommend talking to a licensed mortgage broker instead. Mortgage brokers shop mortgage rates for you so you don’t have to. They can also negotiate on your behalf and get a lower mortgage rate than you might be able to get for yourself. The best mortgage brokers have helped thousands of people get financing for all sorts of different properties, and will have seen your situation before.
I don’t know if I will be owner-occupying my suite, how will that affect my pre-approval?
If you’re unsure, your pre-approval will be based on the worst-case scenario. That way you’ll be able to make a decision later on without having to repeat the process.
At the time of closing, my condominium is worth more than I paid. How soon can I re-finance to pull equity out?
You can refinance at any time, but you may have to pay expensive penalties that could add up to tens of thousands of dollars. A better option to access home equity is with a home equity line of credit (HELOC). With a HELOC, you can access up to 65% of the home’s value, as long as you keep a personal stake of at least 20%. For example, if you owe $300,000 on a $500,000 home, your equity is 40% and you can access up to $100,000. If you think you’ll want to do this, ask your mortgage broker to set it up for you when you apply for your mortgage to save the hassle later on.
I am an overseas investor, what do I need to be aware of when it comes to financing?
Non-residents can get financing from Canadian financial institutions, but the rules are much stricter. Be prepared to make a much higher down payment (at least 35% to 50%), and undergo a much more rigorous application process. You may also pay a premium on your mortgage rate.
I am an overseas investor, how much down payment do I need for a new condo?
If you’re using a Canadian lender to finance your condo, you may need to make a down payment of up to 50%.