Condo in Canada are fundamentally one of the most affordable real estate options that one might look for. It is one of those units that might be best suitable for migrants or people with an isolated budget. There are often brand new condo in Canada for sale, and paying in cash might be a good idea because it calls off the liability of mortgage payments and the trouble of paying the added-up interests.
Any buyer willing to make complete payment to the seller without being tied up to several rules and conditions gains the upper hand in the market. As for sellers, cash payments are more profitable because of the fast facilitation of the real-estate money without fearing timely payments or lack of it from buyers.
So, if you are wondering if you should take out a mortgage or pay in one go for your condo, this article is sure to help you make the best decision.
Buying a House with Cash: What to Keep in Mind?
There can be a lot of thoughts running in your mind regarding the procedure to buy condo. Searches for brand new condos for sale also include questions about the payment method. Should it be cash or mortgage?
Let’s go ahead and discuss all the key points to buy condo in Canada with cash:
- While buying a condo with cash, you can make a no-financing condition or can use an all-cash offer for the same.
- Making an all-cash offer is intriguing to the seller in obvious ways.
- Getting a better deal is easier while making an all-cash offer.
- Paying in cash liberates you from the burden of applying and getting a mortgage.
- Paying in cash might end up tying a lot of the buyer’s money to one asset, which might limit the bandwidth of their personal investments.
- Buyers may lose the leverage that is provided by the mortgage when paying all cash for a condo.
- Liquidity may be at stake with the invested money, and it would be affected by the choices you make, which might include liquidating assets in times of need.
While making an all-cash payment is commonly opted by people, the buyer must do their research beforehand and figure out what method might suit them the best. Check out all the advantages and disadvantages of buying a condo with an all-cash payment as are listed below.
Advantages of Paying Cash for Condo in Canada
There can be many advantages of paying all cash for a condo which includes the following:
Free from Mortgage Approval
Getting approvals for a mortgage can be difficult, especially for those who lack credit ratings or are under a significant amount of debt. To get approved for a mortgage, lenders prefer a credit score of at least 650 and a debt-to-income ratio of 43% before approving any mortgage application.
If you are looking for condos to buy in cash, it would definitely be a better option since getting approved for a mortgage can be stressful and challenging for borrowers.
Buying a condo with cash would be beneficial for you as worrying about the qualification and further applications for a mortgage wouldn’t be something that would bother you. The strained process of applying and waiting for the latter to come through can also be avoided by the same.
In the case of owning a condo via a mortgage, the lender would still own a part of the property, depending on your part of the equity. But when you are owning a condo that you paid for in cash, you can be the sole owner. This offers a feeling of finality, security, and reassurance as you won’t have to think about hefty mortgage instalments anymore. Additionally, the chances of losing your home to the lender again will be next to zero, even if you default your mortgage.
Makes a Buyer Stand Out
In the real estate market, there is definite competition amongst buyers when it comes to property purchases and payments. And, in scenarios like these, standing out becomes important. By paying all cash, you bring innumerable perks and conditions to the table. This steals the seller’s attention and makes you stand out.
One of the things that sellers dread when selling properties is the finances and the financial conditions of the buyers. Eliminating that condition and buying a condo with cash gives you the upper hand. Hence, the seller might favour you without going through the mortgage approval process and application.
Savings as a Blessing in Disguise
Real estate is in itself a good investment. Endowing in a property or a condo would help in the value increment without the burden of paying interests for any mortgage. This will, in turn, help you save more and will save you from a heavy liability.
Disadvantages of Paying Cash for Condo
Even when paying all-cash has its benefits, there are downsides to it as well that you should consider before buying your brand new condo. Check out the three key disadvantages of buying a condo with cash below.
Restricts Other Financial Investments
Although you might be building and adding profitable benefits to your asset, paying all cash would tie up all your capital to a single asset. This is one of the biggest drawbacks of paying in all-cash for your condo. Investing in a single unit might restrict you from diversifying your finances, which is one of the major drawbacks.
Managing Other Expenses Become Difficult
While investing all your cash in one asset would suffice the source, managing other expenses can become a bit tricky for you to handle. One of the biggest drawbacks can be acquiring equity in the condo, where you would have to go through the whole procedure of either taking out the mortgage and freeing the cash or selling the property to liquidate the asset, if necessary.
Zero Tax Deduction
While you get a sufficient amount of tax deduction when paying via a mortgage, you don’t get the same benefit when you pay all-cash in one go. This can prove to be disadvantageous as you would have to look for other investment options for tax reduction.
Down Payment for Condo in Cash
Down payment is the amount of money that you pay in the beginning to obtain a mortgage. In Canada, the minimum down payment can go up to 5% of the total property price. However, for down payments less than 20%, the buyers should opt for the CMHC (Canada Mortgage and Housing Corporation) insurance, which includes mortgage default insurance.
Process of Buying a Condo with Cash in Canada
Buying a condo with cash has more advantages than disadvantages in Canada. So, if you opt to buy your condo in one go with cash, here’s a step-by-step process on how you can do it.
- The first step involves making an offer to the seller. In case the seller accepts the offer, both parties can sign the agreement and move ahead with the sale of the property.
- The seller would cross-check and see if the buyer has the cash to deposit. No private lender is not involved in the transaction.
- After all cross-checkings are complete and the deal has been finalized, you will hire a title company to verify the boundaries of the property and the changes in ownership of the house. They would also be responsible for holding your money and releasing it at the right time.
- After one final overview of the contract, the deal is closed with signing the agreement.
- Have a last walkthrough of the condo to ensure that everything included in the property is on sale and is a competent part of the deed.
Costs of Buying a Condo with Cash Vs Using a Mortgage
While deciding whether to buy a condo with cash or go ahead with a mortgage, you should ask yourself these key questions:
- What can make you more profit in the long run?
- Which one would give you a better return on your condo investment?
- Which can be more beneficial in the latter part as well?
Weigh your answers and choose the one that benefits you.
Paying in Cash vs Paying with a Mortgage
- Paying in cash would eliminate the possibility of paying interest on a loan or any additional cost, mortgage approval and application, and sharing the ownership with the lender.
- A mortgage would give you certain benefits, including tax, having to invest in other things, and opportunities to access liquid assets when needed.
However, when paying with cash, there are some closing costs to cover, which might include:
- Fees of the Lawyers.
- Prepaid Utilities.
- Real estate agents’ commissions.
- Appraisal Fees.
- Home Inspection Fee.
- Land Transfer Taxes.
- Taxes including the property.
- Title insurance.
Anticipated closing costs can go up to 2%-5% while buying a condo in Canada, irrespective of the payment method.
Summing It Up
Purchasing a condo in Canada can be overwhelming, and figuring out the method for the purchase, an added challenge. There are separate pros and cons as to why you should go with paying in cash over a mortgage.
Paying all cash might relieve you from the finances and applying for mortgage approval in the initial stages. But later, you might also realize that all of your money is going into a single entity, stagnating your other investments and affecting your tax deductions. On the other hand, a mortgage has its own baggage of disadvantages.
No matter which payment option you choose, in the end, make sure you are thorough with your research and are well aware of all the possible pros and cons of both payment methods. It is because an informed decision in a property purchase is always a wise decision.
Frequently Asked Questions (FAQs)
Yes, you can definitely buy an apartment with cash. It would rather give you the upper hand in the queue of people looking for something similar.
Yes. You can definitely buy a condo with all cash as it would free you from mortgage issues and make your seller prioritize you more. However, always ask for a receipt as concrete evidence of the hefty transaction.
When paying cash, you can close on a condo in two weeks or less. Buying a condo with cash, on the contrary, can extend the process to four to six long weeks.
Yes, you can pay with cash to purchase a property in real estate. Properties like condos and apartments can be easily bought with cash in Canada.
Yes, a condo investment can be good if you are looking for a condominium rent to own in the future or stay in. As a condo is an affordable unit, it might attract a lot of migrants and people looking for something that will be light on their pockets.
One of the major downsides includes the return value on the property. A condominium rent to own value is something that is time-sensitive and isn’t something that would give a constant and beneficial return.
Research and keep yourself updated with the real estate market. Make sure you do not over/undervalue your property and price it right. Market it properly and make it look presentable. Keep the bargain and the values legible and showcase the best features of your property.
You can even hire a real estate agent or list your condo in a reputed online real estate marketplace to get the best clients. That way, you can also appear in popular online searches like ‘brand new condos for sale near me’, ‘buy a condo near me’, and ‘new condo for sale’.