Many young homebuyers now prefer to buy pre-construction condos as housing prices continue to increase for detached homes. In contrast to resale and ready condos, pre-construction condos are not yet built. In this article, we will focus on pre-construction deposits since this kind of condo project can be more complex due to its payment method. Here are the things you should know about deposit when buying a pre-construction condo.
What is a pre-construction deposit?Pre-construction deposits are generally higher than resale condo deposits in order to fund the construction. Typically, a deposit for a pre-construction condo unit is between 15 to 20% of the total purchase price for Canadians while 35% for foreign buyers. For example, if you are buying a $400,000 unit, the 20% of that amount can be quite overwhelming especially if paid all at once.
The good thing is that builders allow deposit payments to be spread out over a period of time. This is what we call “gradual deposit structure” which is an installment plan for the deposit. This makes it much easier to plan your finances and pay the amount over a period of time. Sometimes builders may require only 10% although it is rare these days.
How does a typical deposit structure look like?Here is an example of a typical deposit structure for a 20% deposit:
1. $5,000 with the offer
2. Balance of 5% due in 30 days
3. Next 5% within 90 days
4. Next 5% within 180 days
5. Final 5% at occupancy
There are even better deposit structures which are often called as “Extended Deposit Payment Plan” with a longer payment period beyond 365 days.
Is Deposit Paid to Builder Same as Downpayment?Paying deposit to the builder and paying downpayment to qualify for mortgage loan can be two different matters. You may qualify for mortgage just with the deposit you paid to builder or may need to come up with more money that your lender requires. Really, these are two connected yet separate matters. Sometimes, I come across buyers who believe that deposit amount paid to the builder is the only down payment that is required. And it's not necessarily true for the reason just mentioned.
IS Deposit ProtectED?
Also, your deposit will be secure because it is protected by Tarion Warranty up to $20,000. You pay the deposit into the lawyer’s trust fund account on behalf of the builder. So, your money does not go directly to the builder. This is an additional protection for a condo buyer.Just a quick tip, deposits are usually higher at the beginning of a project but will become more flexible when the project is nearing completion. This is where you can try to negotiate a deposit structure that will extend or reduce your payments.
You now have an idea now what to expect for pre-construction deposit. Even though you might have to wait for a few years for the condo project to finish, most first-time buyers and small families still consider pre-construction condos as the more affordable and practical option compared to detached homes. I hope this article helped you understand how pre-construction deposit work.
If you have any questions about this or any other aspects of pre-construction buying, contact me at 647-834-9928 or send an email to email@example.com