The Ins and Outs of Pre-Construction Mortgages

Purchasing a pre-construction home is a little different than your basic conventional mortgage process. We will cover some commonly asked questions regarding the pre-construction mortgage process.

Firstly, a purchaser might wonder: Do I need to get a Pre-Approval to get a pre-construction home?

In short, this will depend on the individual developer and the format of their actual project. Most developers will require at least a letter of intent from a mortgage broker.

Pre-Approvals are normally only guaranteed for a maximum of 120 days. While a project can take 3-4 years to be completed, and the market will change over that time, so, it is hard to project your finances and the affordability into the future.

When a developer asks for a letter of intent, your mortgage broker will assess your finances and if all looks good, will sign off that you currently qualify or will be able to obtain a mortgage by the time the project is complete; providing there are no negative shifts in your income or massive rate hikes.

Some developers will ask for a pre-approval from a lender (typically an A lender such as one of the big banks). In which case, you would have to qualify as if you were taking possession of it now, rather than 3 – 4 years in the future when the project is completed.

How can I get a mortgage?

The easiest and most effective way to get a mortgage is through a reputable mortgage broker, such as Sunlite Mortgage.

You’ll need a mortgage broker that knows the industry through and through, has access to a number of lenders, and is up to date on rates, fees, and incentives, so that you will be able to get the best mortgage for your individual situation.

Of course, you can go directly to a big bank, but in most cases, you will get a better rate and/or terms by going through a broker. Most brokers offer extended hours, mobile and remote service to fit into your schedule and save you time. Remember, mortgage brokers arrange mortgages for a living, so they know the ins and outs of many lenders mortgage products and where to find the best deals!

Another benefit, mortgage brokers are free to use, with the exception being if you are needing to go through private lenders. One would need to use a private lender if your credit score is not good enough for an A lender or B lender, or your debt ratios are elevated above what an A lender allows.  

What is the time frame for getting a mortgage?

Your mortgage loan starts on the final closing date of your purchase. This may or may not line up with your occupancy date.

Final closing occurs once the developer completes the building, registers it, and transfers the unit’s title to your name.

At that time, your full payment for the new home is due. Meaning, you’ll need to have a mortgage lined up, unless you are paying cash for the entire purchase.

Since it’s crucial to have your mortgage arranged before the closing date. You should give yourself ample time to explore the various rates, products, and gather your supporting documents. To err on the side of caution, it’s good to give yourself a couple of months (at least) before the final closing date. Once again, using a mortgage broker can greatly simplify this process and alleviate any potential stress!

Does a developer want me to use a specific lender?

Some developers will require you to use only lenders that have been specified by them – this would be outlined in your Agreement of Purchase and Sale.

This is not usually the case, and most developers are fine with any mortgage commitment provided by a mortgage broker, agent, or any A or B lender. On occasion, some developers will provide a list of lenders to choose from to get a mortgage pre-approval from, you will need to pass this onto your mortgage broker so they know where to get your mortgage from.

What is the difference between the Deposit and the Downpayment?

For a pre-construction home - a downpayment is defined as the total deposit made towards your purchase before you move in. So, a downpayment is made up of multiple deposits.

Your downpayment is made up of a deposit structure. A conventional downpayment will be 20%, and an example of your typical deposit structure would look like:

• 2% with the offer
• 1% due in 30 days
• 1% due in 60 days
• 1% due in 90 days
• 1% due in 120 days
• 1% due in 150 days
• 3% due in 180 days
• Final 10% at occupancy/closing

Some projects might have 15%, 10%, or even 5% downpayments, but 20% is the most common. Upon closing, the remainder of the purchase price will be paid through a mortgage.

Summary

When you’re starting the purchasing process for your pre-construction home, you typically only need to worry about getting a pre-approval, or a letter of intent, lined up. When you get closer to the closing date you will need to secure a mortgage.

Having a pre-approval in pre-construction is always a good idea before you even start looking for homes as it gives you a really good idea of the amount you qualify for. This helps to avoid surprises and undue stress down the road.

To get started on the pre-approval process, contact a Sunlite Mortgage Broker today!

Malik Yar
Mortgage Agent Level 2
Sunlite Mortgage Lic#13304
1-877-38LOANS x 426
289-828-0558
malik.yar@sunlitemortgage.ca
www.sunlitemortgage.ca/malik-yar/