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5 Steps to Take if You’re Thinking of Buying a Pre-Construction Home

July 22, 2022

Thinking of buying a pre-construction home? There’s a lot to be said for buying brand new. When you buy a pre-construction home – which is a home you buy before the building is complete – you can customize it to your specific needs and tastes and get to enjoy a brand-new space. Because buying pre-construction is a different process compared to buying a resale home, there are a few key things to consider as you travel this home buying path.

The benefits of buying a pre-construction home

Buying a home before it’s built gives you a tremendous amount of choice and flexibility. In most cases, you can choose your flooring, paint colours, cabinets, fixtures, doorknobs and more. Depending on the level of customization allowed, you may even be able to extend the footprint of the home, change the placement of a staircase or add or remove walls.

Beyond the aesthetic benefits of buying brand new, there are practical advantages too. For example, a new home comes with a warranty, which protects against defects in work and materials, as well as major structural defects. So, if something goes wrong within the warranty period, the builder is obligated to fix it. Plus, pre-construction homes are often less expensive than similar-sized homes or condos in comparable areas.

If you’re accustomed to the buying process of a resale home, you will find that buying a pre-construction property is a bit different. While you don’t need to contend with bidding wars or extensive negotiations with sellers, there are other processes to become familiar with before you buy.

5 steps to buying a pre-construction home

Talk to a mortgage broker 1. Talk to a mortgage broker

Most developers will require you to get a mortgage pre-approval before you can purchase a pre-construction home. This gives them the confidence that you will qualify for a mortgage when the home closes and they will get paid on schedule! A mortgage broker can help you arrange this pre-approval. Then, when your home is close to completion, your broker will keep you up to date on current mortgage rates and work with you to find the perfect mortgage. In short, they’ll be available throughout the process as you need to secure financing for your home.
Understand how the payment schedule works 2. Understand how the payment schedule works

One of the great benefits of buying a pre-construction home is that you don’t need to come up with the full down payment all at once. Rather, payments are spread out over time on a schedule (often referred to as a deposit schedule). While all developers are different, a common deposit schedule looks as follows:
  • $5,000 on signing
  • The balance (less $,5000) of 5% in 30 days
  • 5% in 90 days
  • 5% in 365 days
  • 5% on occupancy
Understanding exactly how your payment schedule works – and what the dollar amounts are – is a critical early step as you consider buying your new home.
Get an experienced real estate lawyer 3. Get an experienced real estate lawyer

Real estate lawyers are integral partners in your home buying journey, and they play an even bigger role when you’re buying a pre-construction home. That’s because pre-construction contracts are often very lengthy, with terms and conditions that are difficult for the typical homebuyer to navigate. Hiring a lawyer with expertise in pre-construction is a good idea, as they will know how typical contracts read and be able to quickly raise any red flags or spot uncommon language early in the process.

Once you make an offer on a pre-construction home, you will have a period of time – typically 10 days – before you’re locked into the purchase. It’s wise to have your lawyer review the contract during this time so you can proceed with confidence.
Understand the cost of upgrades 4. Understand the cost of upgrades

If you fell in love with the model home of the development, it’s important to note that this showpiece likely came with several upgrades that aren’t included in the base price of the home. Depending on your tastes – and the standard options that come with the property – the cost of upgrades can really add up. For this reason, it’s a good idea to leave room for these extra expenses and not max out your budget on the price of the home itself.
Stress-test your mortgage 5. Stress-test your mortgage

In some cases, it can take years before your pre-construction home is move-in ready. During that time, the real estate market could have changed drastically, and mortgage rates may fluctuate accordingly. Consider if you can still carry a mortgage if rates increase – your mortgage broker can help you stress test your mortgage and give you the peace of mind that you can still carry the cost of ownership even if rates rise.

Considering buying a pre-construction home?

Contact your mortgage broker for financing options and/or to secure your mortgage pre-approval. Don’t have a broker? Our Find a Broker tool can help you find the right broker for you.

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