If you’re preparing to buy a home, you may be unsure whether to choose pre-construction or a property that already exists. There can be significant benefits to purchasing a place that hasn’t been built yet, though it isn’t for every buyer. Fortunately, a little knowledge can go a long way.
If you’re deciding whether to buy a resale or pre-construction home, here’s what you should know…
What to Know About Buying Resale
If you’re considering a resale home, there are a few basic facts to know about the buying process. Below are some of the important to be mindful of.
At the beginning of your search, mortgage pre-approval is crucial. This step occurs when a lender goes through your financial situation and tells you how much mortgage financing you’ll likely receive. Having pre-approval matters to sellers—and helps you budget.
Next up, your deposit. This sum, which you’ll typically owe to the seller’s brokerage within 24 hours of signing your purchase agreement, forms part of your down payment. While there’s no minimum amount, 5 per cent is fairly typical.
It’s also important to know about conditions. When you’re putting together an offer, including them will protect you by reducing the risks associated with your purchase. For example, a financing condition makes your purchase contingent upon your ability to secure your mortgage.
When it comes to closing, there are an assortment of costs you must pay. The total usually falls within the range of 1.5 and 4 per cent of your purchase price. Closing costs include things like your legal fees and land transfer taxes.
There are some similarities between buying a pre-construction and resale home (such as how conditions work), but there are a fair number of differences, too. More on that in a moment.
Why Resale May be Right For You
For some buyers, it’s one of the biggest advantages of buying a resale home. You can walk around an existing house or condo and really get a feel for what living there is like. While detailed floor plans can tell you a lot, some purchasers just won’t feel comfortable unless they can see a place in person.
Another major advantage (at least if you want to move right away) is the ability to take possession of your resale home immediately. Depending on your circumstances, a speedy timeline may be a must.
When you’re buying an existing property, the process of getting a mortgage—and knowing what your payments will be like—may also be simpler. That’s due in part to the fact that interest rates won’t change, and neither will your income.
These are a few of the advantages of choosing a resale home, but there are also many associated with pre-construction. Let’s take a look at a few of them.
Are you preparing to buy property? Whether it’s your first time or you could use a refresher, here are a few handy posts on the purchase process:
- Hidden Costs of Buying a Home You Need to Know
- What Not to Compromise on When Buying a Home
- Decoding Changes to the Mortgage Stress Test
The Lowdown on Pre-Construction
Purchasing pre-con is unique. If you’re considering a brand new property, you should understand the process—and how it differs from buying an existing home.
One of the biggest differences is the timeline. You should be aware that the average time between buying a pre-construction place and taking possession of it can be years (often as many as 3 or 4). Construction delays of a few months are common.
Once your property has been built, there will be an interim occupancy period. During this time (which typically lasts a few months or more), you can move in or rent out your space, but you won’t officially own it. You’ll owe occupancy fees to the developer, which are approximately equal to interest on the unpaid balance of your purchase price, along with municipal taxes.
Let’s move back a few steps. When you find the right pre-con home, you’ll need to put down a portion of what is typically a 15 to 20 per cent deposit. This is usually a $5,000 or $10,000 initial deposit, with the rest paid in installments in the months and years ahead.
Another key difference is the opportunity to back out of your purchase for 10 days after you sign the contract. This is what’s known as the cooling-off period, and it doesn’t exist when you’re buying resale.
In most cases, buyers of brand-new homes are also given customization options. Developers frequently offer you a choice of finishes, fixtures, and appliances—and the preferences you go with can help you feel more at home.
Lastly, when you’re buying a brand new property, HST, totaling 13 per cent of your purchase price, needs to be considered. We advise connecting with an accountant, but a rule of thumb is you typically don’t owe it if you are buying as a personal property, and you can get most or all of this amount back through a federal rebate if you are purchasing as an investment property with a one year lease signed.
These are just a few things to know about securing a pre-construction living space, but what are the advantages?
Reasons to Consider Pre-Construction
First off, if you buy a pre-construction home you’ll enjoy the stability (and reduced stress) that comes with paying a fixed price. Forget about bidding wars—they don’t apply. If it’s a condo you’re buying, your maintenance fees will (usually) also be lower than they would for an existing unit. That said, be aware that they tend to rise fairly quickly.
Another big benefit to this property type is the potential for price growth. Your new home will very likely begin to appreciate in value during its construction. And once you make your purchase, it’s going to be a low-maintenance investment until you take possession.
When it comes to your down payment, the flexible deposit structure (which allows you to pay in installments) gives you time to save up. In other words, you don’t need to have all of your funds together at once.
Your 10-day cooling-off period will give you the chance to have your lawyer review your paperwork in close detail, while the chance to customize your space is a benefit in its own right!
You’ll also get a Tarion warranty, which will cover a wide variety of defects. At the 1, 2, and 7-year marks, you’ll receive different levels of coverage.
Have questions about buying a brand new home? Learn more by checking out our Pre-Construction FAQs!
Making Your Decision
When you’re trying to decide between pre-construction and resale, understanding each process—from the timelines to the costs involved—is key. From there, it’s a matter of finding a real estate professional who has a proven track record of helping buyers!