Pre-approvals and condo fees: how do they compare?

Most clients start out shopping for detached homes because they want as much money as they can be pre-approved for, but they ultimately choose condos.

Here are some suggestions for buyers shopping for condos to help them weigh the impact of condo fees.

Usually, condo fees of $200 or less don't matter.

Because condos often have lower property taxes than detached homes and almost all lenders utilize 50% of condo fees in the ratios, the initial $200 usually has no bearing at all. As for the math, If a client was pre-approved for a $500,000 purchase, $3750 (or 0.75 percent of the purchase price) was most likely used as a property tax estimate. The lender will only include half of a condo fee of $200, or $1200 annually, if the condo has one. It's likely that the property taxes on a $500,000 condo will be less than $2550, making the extra $1200 negligible. 

If it's a new construction, the above is irrelevant. 

Most lenders will use the typical larger number as an estimate (0.75% of the purchase price) because the property taxes for a new condo haven't been determined yet. As a result, the condo fee is not offset by lower property taxes. The good news is that, unlike some older condos modern condos often don't have outrageous condo fees.

Depending on the property taxes, each $100 in condo fees normally subtracts $5000 to $7500 from the pre-approval amount. The first $200 is probably not important if it's an established condo with typical condo taxes.