The Ultimate Guide to Pre-Construction

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A good friend of mine reached out the other day asking if a pre-approval was required when purchasing a pre-construction property. The simple answer is it depends. Not so simple, right?

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The reason it depends is because it’s typically driven by the builder. Often times, builders primarily rely on you adhering to their deposit schedule prior to closing. That essentially gives the builder “enough” funds to complete the project before you seek a mortgage approval and finance the remainder of the property.

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On the other hand, some builders ask for pre-approvals up-front to ensure the purchasers can truly close on the property when the time comes. It’s also because, at times, the funds a builder uses to complete their project(in addition to purchaser deposits) is made available to them based on the probability of their purchasers closing on their homes (the more pre-approvals, the higher the confidence in people closing).

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While some builders may require a pre-approval, the most important item to note in that process is that the rate you secure during your pre-approval isn’t the rate you’ll have at closing. Since we’re simply obtaining the pre-approval to ensure you qualify, we’ll have to wait until we’re closer to your closing date to determine the rate for your mortgage.

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Have I lost you yet?

Let’s start with what a pre-construction project is. It’s basically purchasing a property before it’s been built (they typically take 6-months to 4-years to build). You’re usually buying from a floor plan or a rendering of what your prospective home may look like.

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Why would I ever do that?

Well, a pre-construction home has a few benefits that appeal to many people:

1.    You don’t need an entire down payment up-front. Builders allow for a flexible deposit structure making it easier to save for your home.

2.    It’s brand spanking new.

3.    You get to choose the finishes for your home.

4.    It has the potential to appreciate while being built. Imagine the value of your home going up even before you’ve moved in! (More equity!)

5.    It comes with a new home warranty.

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Ok, so it’s a no-brainer, right? Not really.

There is no right or wrong answer here. It truly depends on your personal situation and preference. I personally like both existing and pre-construction homes.  Remember, pre-construction homes also offer an entry-point to first-time home buyers who have been priced out of the current GTA real estate market.

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We like pre-construction. Now what?

Great! You can either go directly to a builder and work with their office sales representative to purchase a new home, or, you can work with a realtor to help guide you through the process. I often recommend working with a realtor because they have insights about builders, projects, locations, etc.It helps to have an experienced opinion when making such a large purchase, especially when that experienced opinion is available to you at no cost.

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Wait, what? No cost? That can’t be right.

It is! It depends on the builder, but Realtors can potentially earn a commission, and again, that commission comes at no cost to you. It’s not added to your purchase price nor are you not asked to pay out of pocket. It’s the Realtors compensation for facilitating the purchase with the builder.

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It’s also worth noting that pre-construction homes are never a certainty. Moe and I actually purchased a pre-construction condominium in Vaughan back in 2018. We were super excited to purchase our first investment property, only to realize approximately one year later that the builder decided to back out of the project and return our deposit. It was a bummer, and the deposit could have been put to better use, but at least we didn’t lose it.

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Even with our project being cancelled (usually a rare occurrence), pre-construction projects continue to spawn up around the GTA. It seems like there is a new project being launched every week!

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Interested in learning more? Don’t hesitate to reach out and I’d be happy to chat through the process and our experience with you.