A house recently sold during winter real estate market in Toronto February 06, 2013.Fernando Morales/The Globe and Mail
The Question:
We can't believe the prices! We rent now and there's no way we can afford a stand-alone house. We thought maybe we could start with a condo, but we're expecting our first child and we know we'll need extra space soon. Should we wait, or go for the condo?
The Answer:
While you would clearly prefer buying a house over a condo, it seems that budget restrictions may prevent this from happening in the near term. But let's take a closer look at the numbers.
The average home price year-to-date in the GTA is about $500,000 (source: TREB Market Watch). Assuming you can come up with a minimum down payment of 5% ($25,000) and the land transfer tax of $6,475 (if you are a first-time home buyer), your total upfront costs would be $31,475. The mortgage would then be $475,000, plus $13,000 for the CMHC Mortgage Loan Insurance typically required with down payments of 20% or less.
Carrying this amount ($488,000) would cost approximately $2,300 per month with one of today's popular mortgage products (3% interest, 5-year fixed term,25-year amortization). Add in property taxes and you will end up paying around $2,500 per month, plus utilities and home insurance.
The average condo apartment in the GTA costs approximately $326,000 (source: TREB Market Watch). With a down payment of 5% ($16,300) and land transfer tax of $625 for a first-time buyer, total upfront costs would be $16,925. The mortgage would total $318,200 ($309,700 plus $8,500 for CMHC insurance).
With the same mortgage terms, your monthly carrying costs would be about $1,500. Adding in property taxes, and of course the maintenance fees required with condo ownership, and your monthly total would be at least $2,100, plus utilities and home insurance.
Not much of a difference, is it? Granted, a home does have more ongoing upkeep and unforeseen repair costs. But another factor to consider is your ability to build long-term equity. There are exceptions, but in the majority of situations a house will increase in value at a more rapid rate than a condo.
The wait-and-see option of renting would cost you an average of $2,088 per month for a two-bedroom apartment (Source TREB Rental Market Report, Q4 2012), plus utilities. The benefit of renting in the short term is that upfront costs will be minimal compared to buying – basically first and last month's rent. And it may give you that much more time to save for a bigger down payment.
If you do buy a condo before you've saved enough for a house, keep in mind that you will get dinged with a hefty land transfer tax since you won't qualify for a first-time home buyers rebate. This can often be offset by an increase in value of the condo that you will realize when you sell.
Land transfer tax varies depending on whether you are a first-time home buyer, buying in the City of Toronto or a combination of the two. Check out my website for further explanations and calculations:
http://www.rickychadha.com/resources/land-transfer-tax.
For more information on Canada Mortgage and Housing Corporation (CHMC) Mortgage Loan Insurance, visit:
http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm
Ricky Chadha is broker with Royal LePage Estate Realty, and specializes in applying social media and other digital tools to the business of real estate. You can find Ricky on Twitter @your416 or at his website RickyChadha.com.
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