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How To Finance A Pre-Construction Condo In GTA

When it comes to financing a pre-construction condo, the process is slightly more complex than a resale condo as payment is divided into stages. Your very first payment will be a signing draft of up to $15,000 followed by a cooling period of 10 days where you can review the agreement with your lawyer and realtor and decide if you’d like to go ahead with your new condo purchase. 

In this blog, we take you through all payments that you will be making in stages along with mandatory fees and warranties and some practical and creative ways you can finance your pre-construction condo in GTA. 

Costs related to purchasing a pre-construction condo in GTA

  • Purchase Price: This is the base cost of the condo unit itself. The price can vary widely depending on the location, size, and amenities of the condo. For example, condos in GTA start around $450,000 for a bachelor unit and can go up to $1.7 million for luxury 3 bed condo units in Downtown Toronto. 

    Most condos have a 10 to 20% deposit structure, which is similar to down payment for resale condos. It is paid in stages, typically over a 12 to 24-month period.   
  • Development Charges: These are fees imposed by municipalities to cover the cost of infrastructure and services like roads, public transportation, and parks. The amount can vary but can be several thousand dollars. The builder mentions this fee in the purchase agreement and is usually added to the purchase price.
  • Land Transfer Tax: In some cities like Toronto , there may be a municipal land transfer tax in addition to a provincial one. It is calculated using the purchase price, so someone purchasing a 1 bed unit will have to pay lower tax compared to a 3 bed unit. It is the biggest chunk of your closing costs, so you can expect to pay upwards of $10,000. 
  • Legal Fees: Involving a real estate lawyer is mandatory, not just for official reasons but also to understand the agreement and protect yourself. Legal fees can range from $1,500 to $2,500 or more, depending on the complexity of the transaction.
  • HST/GST: New construction condos are subject to HST or GST, though buyers may be eligible for a rebate in some cases. In Ontario, you have to pay 5% federal tax and 8% provincial tax, totaling to 13%. You are eligible for two kinds of returns: New Housing Rebate and New Residential Rental Property Rebate. For more details on exactly how much rebate you’re eligible to receive, contact our sales team.
  • Tarion Warranty Fee: In some regions, such as Ontario, Canada, new homes are covered under the Tarion Warranty Program, which protects buyers of new homes. The fee for this warranty is scaled based on the purchase price and is typically 7 years long.
  • Adjustment Costs: These are additional costs that can include items like utility hook-up fees, property taxes, or maintenance fees that are prorated based on your purchase date.
  • Parking and Storage: If these are not included in the purchase price, they can be significant additional costs. Parking spots can range from $30,000 to $80,000, while lockers typically cost up to $15,000. After purchase, you will be required to pay monthly maintenance fees for both parking and storage, which ranges between $50 to $150. 
  • Amenity Fees: Also known as condo fees, this is a mandatory charge you pay for amenities like fitness centers, pools, or party rooms. You can pay them upfront as yearly fees or on a monthly basis. It also covers utilities and in some condos electricity as well. 
  • Occupancy Fees: Also known as “phantom rent,” these are fees paid when you can occupy the condo before the building is officially registered.
  • Home Insurance: While not immediately due at purchase, it’s important to factor in the cost of insuring your new condo.
  • Mortgage Loan Insurance: If your down payment is less than 20% of the purchase price, you may need to pay for mortgage loan insurance. It is added to your monthly mortgage payments and can be removed once you have 20% equity in the condo. 
a beautiful open layout condo with brick wall and modern artwork

Ways to finance your pre-construction condo in GTA

Making deposit payments for new condos in GTA allows you to be more flexible and creative with collecting funds. We’ve outline some traditional and creative financing methods to give you a general idea and help your process: 

Traditional Financing Methods

1. Savings

Typically in GTA, new condo projects require a 15-20% down payment (also called deposit), which is paid in stages. You aren’t required to show proof of funds when booking a condo but it is a good idea to have that amount collected. It can come from your personal savings, which is usually the most common way for my clients. 

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2. Bank Mortgage

For the remaining balance, a conventional mortgage from a bank is the most common financing method. National Bank, BMO, TD, and Scotiabank, all provide pre-construction mortgages. If your down payment is less than 20%, you will also require mortgage insurance, which is added to your monthly mortgage payments. 

3. Home Equity Line of Credit (HELOC)

If you already own property, a HELOC allows you to borrow against the equity in your current home. It is the easiest way to finance the deposit or closing costs, which can go above $15,000 for higher value projects. 

4. RRSP Home Buyers’ Plan (HBP)

In Canada, the HBP allows first-time homebuyers to withdraw up to $35,000 from their RRSPs tax-free to purchase or build a qualifying home, which can include a pre-construction condo.

Creative Financing Strategies

5. Co-Ownership

Buying with a partner, family member, or friend can make a pre-construction condo more affordable. Co-ownership allows you to pool resources for the deposit and mortgage, but it’s essential to have a legal agreement outlining each party’s responsibilities and rights.

You may choose to sell this condo before completion as an assignment sale but it is always recommended to think long term, rent out the unit, and build equity. 

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6. Renting Out Your Current Home

If you already own a home, consider renting it out a couple bedrooms or the basement. This rental income can fuel your deposit payments and you’ll also be able to save for future mortgage payments. 

7. Crowdfunding

A more modern approach is crowdfunding, where you gather small amounts of money from a large number of people, typically via the internet. Have a solid plan in place and keep clear records. This method is ideal for higher value projects that cost upwards of $1.5 Million. 

8. Real Estate Investment Groups (REIGs)

If you are young and want to make small investments every few months, joining an REIG is an excellent method. These groups pool resources to invest in real estate and can be a source of financing, especially for investors looking to add to their portfolio.

9. Seller Financing

In some cases, the developer or seller may offer financing. It is common for projects in Calgary and Edmonton. Most often the interest rates are lower since the builder can negotiate better terms and rates with a major lender. 

10. Government Programs

Keep an eye on government programs that offer incentives or rebates for new home buyers, which can help reduce the overall cost. GST/HST New Housing Rebate and the newly introduced New Residential Rental Property Rebate are two such programs. 

I am always here to answer any questions or queries you have. Our sales team can also refer you to mortgage lenders and help you find the best terms and rates in Canada. Get in touch with us today!

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