If you’re exploring the purchase of a pre-construction condo in Toronto, it’s important to understand your financing options. Financing for pre-construction homes or condos is a little different than financing for a resale home or condo. That’s because unlike with resale, you’re not getting a mortgage or paying your full deposit right away. With a pre-construction purchase, you’re typically paying the deposit over time, during the construction period, with a deposit payment schedule. Mortgage financing usually kicks in at final closing, not at the time of purchase. You may need to provide a mortgage pre-approval when signing your agreement, and then formally qualify again when the condo is ready at final closing.
Read on to learn more!
Quick Recap: The Benefits of Buying Pre-Construction
As we’ve covered in previous blog posts, pre-construction condos offer many benefits. These include customization options, modern design, and better potential rental income. They can also be a better investment compared to resale. New development condos purchased at the pre-construction phase offer the opportunity to secure the lowest possible price, flexibility in the financing, and other perks that increase their value, like top-notch amenities, fewer repairs and maintenance, and more.
Buying a pre-construction condo in Toronto can also offer a more flexible and approachable down payment structure.
Understanding the Deposit Structure
Most Toronto pre-construction projects require a deposit of between 15% and 25%. This may seem like a lot, but the amounts are broken up and spread out over several months or even years.
Here’s what that deposit schedule might look like, as an example:
$5,000 deposit due on signing
5% due within 30 days of the offer
5% due within 90 days
5% due within 180 days
5% due at the time of occupancy
In some cases, especially for investors or first-time buyers, builders may offer limited flexibility or extended deposit structures. Some new home builders and condo developers also offer deposit loan programs or incentives. Home buyers and investors often use a line of credit or savings to cover deposit payments.
By contrast, when purchasing a resale home or condo, a deposit of around 5% is typically required to secure a property. Once the offer is accepted, buyers must pay their full down payment upfront. In Canada, the minimum down payment required to finance a home with a mortgage is 5%, but many people aim to put down at least 20% in order to secure a better mortgage (and a 20% down payment is a requirement for homes valued at $1.5 million or more). Down payments of less than 20% mean that your mortgage may be classified as high-ratio, which typically means that mortgage default insurance from the Canada Mortgage and Housing Corporation (CMHC) is required in order to protect the lender from the risk of borrower default.
Mortgage Pre-Approval
When buying a pre-construction condo in Toronto, even though you won’t need the mortgage for a few years (when the condo is fully constructed and ready for move-in), a mortgage pre-approval is often required at the time of signing. This is in order to show the builder that you’re financially qualified.
Rates and terms may change by final closing, so buyers should be prepared to re-qualify closer to occupancy. Click here to learn more about evaluating your financial situation and getting pre-approved for a mortgage.
Final Mortgage Approval at Closing
At final closing, you’ll need to secure a mortgage for the remaining balance of the purchase price (minus the deposit you’ve already paid).
Be prepared to:
- Re-qualify under current mortgage stress test rules.
- Provide updated income/employment information.
- Work with a mortgage broker or lender experienced in pre-construction.
Interim Occupancy vs. Final Closing
In condos, you may get interim occupancy before you officially own the unit. During this period, you pay occupancy fees, which are different than mortgage payments. You can’t mortgage the property until the date of your final closing.
Government Programs & Incentives
When financing your Toronto pre-construction condo, remember to take advantage of all available government programs and incentives. These may include:
- First-Time Home Buyers’ Tax Credit
- RRSP Home Buyers’ Plan
- GST/HST New Housing Rebate
- Land Transfer Tax Rebates
- And more! (Learn more here.)
Check out our blog post “Everything You Need to Know About Buying a Pre-Construction Condo in Toronto: FAQs” for more info.
Do you have questions about financing or buying a pre-construction condo in Toronto? Connect with BAZIS on Facebook, X, or Instagram – we’d love to hear from you!