Buying new construction—whether a pre-construction condo or a new-build home—involves different mortgage processes than purchasing a resale property. Understanding these differences helps you avoid costly surprises and secure the right financing. Types of New Construction Purchases Pre-Construction Condo Timeline: Purchase 1-4+ years before completion Process: Sign agreement and pay deposits over time No mortgage needed until closing/occupancy Must qualify for mortgage when building completes Builder New Home Timeline: Purchase before or during construction, typically 6-18 months Process: May use progress draw mortgage Or standard mortgage if home is near-complete Closing when construction completes Custom Build (Your Land) Timeline: Variable, typically 8-18 months Process: Construction mortgage with progress draws Converts to regular mortgage on completion More complex underwriting The Pre-Construction Deposit Structure Typical deposit schedule for pre-construction condos: Cumulative At signing 5% 5% 30 days 5% 10% 90 days 5% 15% 180 days 5% 20% Occupancy Balance Down payment Key risk: These deposits are typically non-refundable. If you can't qualify for a mortgage at closing, you may lose your deposits. Start Planning Your New Build Talk to our team about new construction financing well before your closing date approaches. The Rate Lock Challenge Most rate holds last 90-120 days. Pre-construction closings are often 2-4 years away. This creates challenges: Strategies for Rate Protection 1. Extended Rate Holds Some lenders offer 6-12 month holds Usually at slightly higher rates Limited availability 2. Rate-Hold-On-Completion Programs Rate determined closer to closing Less certainty, but current market rate Standard approach 3. Accept Rate Risk Current rates may not be available at closing Budget for higher rates as contingency Rates could also be lower Rate Change Impact $500,000 mortgage, rates increase 1%: Payment increases ~$275/month You may qualify for less Budget accordingly Progress Draw Mortgages (Custom Builds) For custom construction on your own land: How Draws Work % of Loan 1 Land (if separate) 15% 2 Foundation complete 20% 3 Framing complete 25% 4 Roof/windows/rough-ins 20% 5 Final completion 20% Percentages vary by lender and project During Construction Interest-only payments on drawn amounts Inspector visits before each draw Builder must submit invoices/progress On Completion Mortgage converts to standard amortizing mortgage Final inspection and occupancy permit required Regular P&I payments begin Qualification Timing: The Critical Risk Pre-Construction Risk You must requalify at completion: Impact Income decrease May not qualify Job loss Major problem Credit score drops Higher rates or denial Debt increases Lower qualification Interest rates rise Qualify for less Property doesn't appraise Financing gap Protecting Yourself Conservative budgeting: Don't max out your qualification Job stability: Avoid career changes before closing Credit protection: No new debt, maintain payments Cash reserves: Have buffer for rate changes Contingency planning: What's Plan B if you can't close? Occupancy vs. Final Closing (Condos) Occupancy Builder allows you to move in Condo not yet registered You pay "occupancy fees" (like rent + taxes) No mortgage yet Final Closing Condo registration complete Mortgage funds You take title ownership Can be months after occupancy Plan for both dates when budgeting. What's Next New construction financing requires early planning. Connect with our team well before your anticipated closing date—ideally at least 6 months before—to ensure smooth financing. Ready to Get Started? Contact us today for personalized mortgage advice and competitive rates. Get Pre-Approved Call (416) 822-7357 Frequently Asked Questions Q: What if I can't qualify when it's time to close? A: You may lose your deposits—potentially tens of thousands of dollars. Some developers may agree to extensions, but they're not obligated. This is the primary risk of pre-construction. Q: Can I use my pre-construction purchase as collateral for another property? A: Not until it closes and you have actual equity. During the pre-construction period, your deposits are with the developer, not as home equity. Q: Do I need to be pre-approved before signing a pre-construction contract? A: Not required, but strongly recommended. Pre-approval tells you what you can likely afford, though it doesn't guarantee future approval. Q: What happens if the builder delays closing? A: Delays are common. Your rate hold may expire, and you'll need to lock a new rate. Budget for this possibility. Q: Can I assign my pre-construction contract to someone else? A: Depends on the developer's terms. Many allow assignments (for a fee). Note that assignment profits are taxable income.
