What’s New is New Again
With housing affordability a struggle for many across the country, considering a new construction build – a home that won’t be built for a few months or years – is an opportunity for some to get into the market but at a slower pace. This allows for a little wiggle room to gather the 20% down payment prior to construction getting underway. New construction, also known as pre-construction homes, are generally purchased directly from the builder and also provide an opportunity for the buyers to customize their home prior to it being built. In 2021, Statistics Canada reported that new construction builds hit a record high of over 271,000 new homes in Canada. The Canadian Mortgage and Housing Corporation predict that this type of property will continue to be popular in 2022 and beyond due to the high prices of homes in the country and growing population levels.
Builders generally have a master plan for the community as well as several model homes or layouts to choose from. They have various lots, locations and sizes toon offer as well. While picking all the finishes and customizing your dream home sounds, well, like a dream, there are a few factors to consider.
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Tips for Buyers When Considering a New Build Home Purchase
1. Mortgage Pre-approval & Down Payment Requirements
As your home is not expected to be built for one or more years, people often do not think they need a mortgage or significant down payment to purchase a new construction home. However, most builders do require a 20% down payment and mortgage pre-approval when purchasing a new build as part of the buyer requirements. Each builder will have their own specific criteria on what needs to be on the purchase letter and disclosure statements so be prepared in advance. To learn more about the options of variable versus fixed mortgage financing read this comparison. Generally speaking, your down payment schedule will be phased in depending on the builder, but could look like this:
- $5,000 on signing the contract
- 5% (minus $5,000) after 30 days of signing
- 5% after 60 days of signing
- 5% after 120 days of signing
- 5% on occupancy
2. 10-Day Cooling Period
Not sure if you made the right decision or have a concern about the builders’ contract? If you are considering a condo purchase you are automatically protected through a “cooling off period” in which you, as a buyer, can rescind your offer for any reason with no financial penalty during this period. However, the cooling off period varies by province. In Ontario and Saskatchewan, the duration is 10 days, for example. In British Columbia and Manitoba, the period is only seven days. See the table below for cooling-off periods in some provinces. Reminder that the cooling-off period is only eligible for purchases directly from the condo builder and does not include assignments or resale. The calculation of the duration of the cooling off period from your purchase date also includes the weekends.
3. Tentative Occupancy Date
It is important to understand just how tentative the occupancy date is that you agree to on the purchase documentation. Projects can be delayed by a number of factors such as permit delays, supply limitations, construction strikes, weather and many more. Therefore, be mindful that the occupancy date you see is only a rough estimate and delays are to be expected. This might adjust your approach to your current living situation whether you opt for a flexible lease extension or the ability to find alternative arrangements should the occupancy date be delayed. Read more about buying versus renting here.
4. Interim Occupancy and Additional Fees to Consider
Most builders charge interim occupancy fees when you take occupancy. Because the ownership is still in the builder’s name, however, your unit is ready to move into. Note there will be parts of the building that are still under construction during this time. Be aware that this fee is in addition to your purchase price and does not deduct from your mortgage. You are going to want to be clear on what the interim occupancy fee is and take this into account when you are budgeting your purchase. Also, many model purchase prices are for the “base model”. Desired finishes may be considered an “upgrade” and will also add to the original price tag.
5. Assignments
Assignments occur when you wish to assign or sell your unit before the building is registered and completed. There is usually a separate cost for the assignment in addition to the legal and admin fees of the sale. Prior to purchase, make sure if assignments are allowed, the cost of the assignment as well as the terms and conditions under which assignments can occur. In some situations, assignments need written approval from the Builder.
New construction homes can offer the ability to make your future dreams of home ownership come true today. To see the latest homes for sale in your area, visit our search page now.
