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Mortgage Insights

Condo, Townhome, Detached... OH MY!

January 27, 2020 | Posted by: Haystax Mortgage

Condo, Townhome, Detached... OH MY

When you are considering the purchase of a new property it is important to know about the types of properties available to consider. In Canada we have three types of homes that are what most home buyers will consider, and each comes with different negatives, positives and costs. With each home ‘style’ having its own set of benefits and possible pitfalls it is essential that you know what you’re looking for and how the management and costs of the property may affect you in both the short and long term.

Although there are many different property types and registrations such as Farms, Commercial Properties and more when looking at the majority of Home Financing clients typically look at one of three options; Detached Homes, Condos, and Townhomes. Having clarity on what each of these are and how they change the cost of home ownership will help you better navigate the home buying process.

As lenders/banks look at your overall credit, including many costs of owning and operating your home, having the knowledge of the extra costs or the way the properties are assessed for your purchase can be an invaluable tool in helping you save time, money, and a lot of stress. Let’s talk about each of these home types, how they differ, and what you should consider so that you can shop with confidence.

Detached Homes

Typically, a stand-alone home on its own property, detached houses offer independent living with your own four unattached walls. For many Canadians owning a ‘house’ is the ultimate goal and attaining ownership of a detached dwelling is the dream.

Historically, we all lived in stand-alone homes. However, as we moved into cities and away from rural life as a population, things have changed. Density, supply, demand, and location have become factors in the modern housing market which all affect price and affordability. As a result, the ability to own a detached house within the confines of a city has become less and less attainable for most. Detached homes, in most regions, definitely come at a premium. With the exception of some luxury condos or penthouses, houses are generally the most expensive property type to buy. On top of a having a higher barrier of entry, owning a detached home comes with many possible costs and extras you may not have considered.

Detached homes generally have a number of extra costs and require extra planning for the future compared to Condos or Townhomes. Like all properties they require that you pay your annual city or municipal taxes for the property and keep your home insured. Unlike the other property types, you do not share the financial burden for contingencies, repairs, or upkeep with other owners. Owning a detached home allows you the ultimate in ‘private’ ownership, but, it is important to know and plan ahead as anything that happens is your responsibility.

Detached homes require maintenance, upkeep, replacements of appliances and/or broken items in the home, monthly payments, Insurance, etc.…. AND although not required, should most definitely have a contingency plan in place and funds that can be available if the worst happens.

All in all, a detached home is a bigger responsibility than other property types. It is important to make sure you are prepared personally and financially to deal with whatever may happen. Living ‘house poor’, when the costs of your home suck away all of your money leaving nothing extra to enjoy, is a tough sacrifice for most and typically is not a sustainable way to live. Make sure you know what you’re getting into! Talk about the costs, ask questions and get all of your info up front, it’s the only way to be truly prepared… and remember… you’ll have to mow your own lawn and pick the weeds yourself too!

Condos

Back in the day we use to call these apartments, in the UK they call them flats. The legal term in B.C. (for example) is ‘strata unit’ and in Quebec they are called “co-ownership” (in French, copropriété). What this generally means is that these homes are in a shared building with shared walls. Although some strata complexes can have townhouse units and stand-alone homes as they are all under the same management, they all fall under the Condo banner. With Condos you typically own the unit, and have a shared interest in the ‘common property’ with the other owners.

Be it a single unit, or any style of dwelling within a ‘condo development’ a major factor to consider up front is the payment of strata fees. Strata Fees are charged by the management of the complex or building monthly and are variable in cost based on your portion of ownership of the entire building. Depending on the amenities available these fees can go from very affordable to extremely pricey. In a condo (strata) complex it may seem awesome to have a clubhouse, pool, and games room but it is also important to remember that they do come at a cost. Typically the rule of thumb is, the more there is for residents, the more you’ll pay per person as it is everyone’s responsibility to cover the costs of maintenance, upkeep and replacement. In some cases, it may cost you less to buy a gym membership than pay the additional strata fees required to have a pool and a gym in your building.

The great thing about condominiums is the freedom associated with being able to just ‘lock your door’ and have less day-to-day worry about the property. Along with covering the operational costs of the complex, a portion of your strata payment is put into a contingency fund which accrues and is kept for emergencies and larger issues, thus alleviating most of your need for a contingency fund. Although don’t think you’re off the hook. Special levies often happen in Condos and this can be a cost you aren’t prepared for. A levy is a charge to all owners to make repairs when the contingency fund is not available or does not have the funds to cover the costs. Although these costs are shared, they can be very expensive and when considering reroofing a building or fixing a leaky condo the costs can easily go into the tens of thousands of dollars. Food for thought!

Condos do have their pros and cons, but do offer some benefits that a single-family detached home cannot. Knowing what is important to you, what you’re willing to pay for, and what surprises could be ahead, are important factors when considering a condo purchase. Ultimately, if you want to live in the city these dwellings are on usually the least expensive of our three property types, and allow for the easiest entry into home ownership based on affordability and location.

Interesting fact…. Did you know that banks and lenders look at Strata documents to assure that they are well managed, the building condition is acceptable, there is adequate money set aside in a contingency fund for those unexpected costs? Because of this, lenders can turn down applications based on the property even if you qualify.

Townhomes

Somewhere between a detached home and a condo sits the Townhome. Townhouses (or Row Homes) can have a number of different property structures including being considered a strata when there are shared costs for the development. Townhomes can often be very much like a condo when in a development or when part of a planned community and often have the same costs and benefits as a condominium.

A townhome is defined by; having its own front door, being attached to or built very close to the next townhome, and having the possibility to have ownership of the land. These properties generally have between two and four floors and are in many ways a true blend of Condos and Detached Homes. Townhomes give you the feeling of a home in a slightly less independent fashion than a stand-alone home, but also often have back yards or additional outdoor space a condo would lack. Townhomes also have the luxury of being at ground level and of having their own address.

Over the last few years townhomes have become increasingly popular because of the advantage of feeling more like a house while still often having features of a strata complex. Many townhouse developments will have contingency funds (strata type payments), gardening services, and possibly amenities whereas others are very much autonomous units placed side by side. Due to these factors this is again a time you need to ask questions, get the details, and figure out what your costs will actually be.

Townhomes usually offer the benefits of being in a community with close neighbours with shared ownership and accountability for the entire property. For people looking for the experience of a detached home, with less maintenance and conveniences of a strata, a townhouse might be the way to go. Remember that these properties trend with a higher demand than condos or detached homes, so purchase price is higher than that of condos. Also, with a more limited supply, competition for available properties can be fiercer.

If you are looking at different types of properties it is very important to know how the costs associated fit into your budget. If you are looking for some great budgeting tips check out our Budgeting series to help guide you.

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