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.
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.
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.
As of September 2024, the Canadian government has extended mortgage amortization periods to 30 years for first-time homebuyers and purchasers of newly built homes. They also increased the cap for insured mortgages from $1 million to $1.5 million, which means more buyers can qualify for mortgage insurance with a minimum down payment of 5%
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.
Creative Financing Strategies
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. Private Mortgages
Private mortgages are an alternative when traditional lenders reject applications due to income verification issues, self-employment status, or poor credit history. These loans come with higher interest rates (often between 8% and 12% in Canada) and shorter terms (typically 1 to 3 years).
This also means their terms are stricter, risks are higher and failure to pay can lead to foreclosure. Despite the risks, private mortgages can help buyers who need short-term financing or those investing in pre-construction properties that they will eventually re-assign.
11. Short-Term Loans
Bridge financing or personal loans, help buyers cover deposit payments while waiting for funds from a home sale, investments, or other sources. Like private mortgages, these loans also have a higher interest rate and strict repayment terms. Rate of disapproval is high if you can’t establish strong repayment ability.
Down Payment Assistance Programs
12. Home Buyers’ Plan (HBP) – RRSP Withdrawal
This plan allows first-time buyers to withdraw up to $60,000 from their Registered Retirement Savings Plans (RRSPs) tax-free to use as a down payment. Couples can combine their withdrawals for a total of $120,000. Withdrawn funds must be repaid into the RRSP within 15 years to avoid tax penalties.
13. First-Time Home Buyers’ Tax Credit (HBTC)
It is a non-refundable tax credit of up to $10,000, resulting in a tax rebate of approximately $1,500. To qualify, you or your spouse/common-law partner must have purchased your first home and not owned another home in the preceding four years. Only one spouse can apply for this tax credit.
14. Land Transfer Tax Rebate for Ontario Buyers
First-time homebuyers in Ontario are eligible for a land transfer tax rebate of up to $4,000. For those purchasing within Toronto, an additional municipal land transfer tax rebate of up to $4,475 is available, bringing the potential total rebate to $8,475.
To qualify, buyers must be Canadian citizens or permanent residents, at least 18 years old, and occupy the home as their principal residence within nine months of purchase.
15. First Home Savings Account (FHSA)
Introduced in 2023, the First Home Savings Account (FHSA) allows first-time homebuyers to save up to $8,000 per year, with a lifetime contribution limit of $40,000. Contributions are tax-deductible, and withdrawals for purchasing a first home are tax-free.
Funds can be invested, and any growth is also tax-free. Reach out to your bank to open an RRSP and invest in low to medium risk mutual funds, GICs, or index funds to grow your money.
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!