The decision to buy your first home is one of the biggest and most important financial decisions you’ll ever make. No pressure, right? Just when you decide you’re ready to start exploring though, you find yourself faced with a tough environment and some tough questions to answer.
How much home can you afford? Where do you want to live? What type of building do you want to live in? This last question is one we’ll dive into a bit today. First off, there are three main types of homes you can buy: a house, a townhouse, or a condo. There’s semi-detached houses as well, but we’ll group them in with houses for simplicity’s sake 🙂
So what’s the difference between them? Well, lots. Here are some of the defining characteristics of each category.
Condo
One of the defining traits of a condo building is that it is a multi-unit dwelling. You share the building with other people, same as you do an apartment. Another defining characteristic is that condo buildings are managed by a board of directors or homeowners association, which hires property management companies to take care of the property and act on behalf of the building residents.
Here’s another important one: You don’t own the land on which the building is built. When you buy a condo, you own your unit, but that’s it. The building, its amenities, and the land on which it sits are all considered common areas. Because you don’t own the building, you are required to get approvals for any renovations or changes you want to make to your condo unit.
Lastly, condos come with management fees; these are fees paid by unit owners into a shared pool that pays for building amenities, property maintenance, and so on.
Townhouse
Townhouses sit in between condos and houses on the spectrum. They’re similar to condos in that they sometimes come with maintenance fees that cover property maintenance. They also come connected to other homes, though townhomes only have neighbours on the left and/or right – they don’t come in high-rise form.
Unlike condos though, when you buy a townhome, you own the land, the building and everything else that falls within your property line. This means you can customize your townhome as you like.
Remember how I said townhomes may or may not come with condo fees? Well the ones that don’t are called “freehold” townhomes. Freehold townhomes have no condo fees, but that also means you do all the maintenance yourself. No underground parking, no grass cutting, and no snow plowing. It’s all you!
House
A house sits on the other end of the spectrum from condos. They come in both single detached and semi-detached (meaning the home is split into two units) forms, and are always freehold. This is what most people think of when they think of property ownership.
Importantly, with a freehold property, you’re on the hook for all maintenance. If your roof caves in, you’re paying for it!
So which one is best for a first-time buyer?
Well, let’s start with this: with the recent interest rate hikes and tighter mortgage qualification rules imposed by the Bank of Canada, the reality is that buying a detached house as a starter home is not an option for most. Prices have gone up so much in the past few years, that unless you’ve lived at home and saved a ton, or you make a ton, or you’re borrowing from the Bank of Mom and Dad, buying a detached is probably not realistic at this point in your life.
But let’s say that all three options are on the table for you. Here are some things to consider when deciding between them.
How much work do you want to do yourself?
Detached homes require the most work by the homeowner. How willing are you to shovel snow, cut grass, maintain gardens, perform repairs, hire contractors and cover renovation costs? There’s time and money involved in all of these, and if you’re not willing or able to invest it, then you might not be at the point in your life where owning a house makes sense.
With a condo building, you get access to amenities (like BBQs, pools, underground parking and so on), and you don’t have to worry about cutting grass or shoveling snow. Living in a house myself, I have to say that this is one of the things I miss most about condos.
Home much home and you afford?
All other things equal, condos tend to be the cheapest, with houses being the most expensive and townhomes coming in somewhere in between. Here’s the thing though – those condo fees can really add up.
Let’s assume for a sec that you’ve crunched the numbers in a mortgage affordability calculator like this one, and it turns out you can afford a total of $2,000 in monthly mortgage and condo fee payments for your property.
At a 3.5% annual interest rate, you could afford a $400,000 25-year mortgage, where the payments would come to $1,997 per month. Let’s compare that to a condo though. A one-bedroom condo can carry fees of around $300 per month or more. If that’s true, then you can only afford to shell out $1,700 for your mortgage, because you need the last $300 to pay for your condo fees. In that case, you can only afford to borrow $340,000 to buy your condo. You need to factor these fees into your overall budget.
What kind of lifestyle do you want to live?
Your dollars may not stretch as far with a condo, but they will allow you to live a very low-maintenance lifestyle when compared to owning a house. Most condos come with great amenities and are beautiful buildings to live in. They’re also often conveniently located. Do you want to live downtown and close to the action? A condo might be a good bet then. Do you want something a little quieter that gives you the freedom to make all your own decisions? Then maybe a house is a good bet.
Wrapping it Up
I’m just barely scratching the surface when it comes to buying your first home and deciding between a condo, a townhome or a house. For more reading on the subject, check out a few of these great articles I’ve curated for you:
- Homeownership.ca – House vs Condo
- Investopedia – House type comparison
- Condo Lender – Characteristics of a Condo
- AP mortgage – Benefits of investing in condos
- Mortgage Architects – Condo Buying 101
