The typical scenario for a resale (another person’s or used) home involves researching active listings via internet, signage, realtors, realtor websites, open houses etc. followed by viewings and offers through a buyer/listing realtor. Purchasing a new home is significantly different, particularly a pre-sale new home.
When you buy a new home (completed by the builder but not lived in by anyone else), it may be somewhat of a similar scenario as noted above. There may or may not be realtor involvement as many builders as some prefer to sell their homes through their own sales representatives. There may also be some differences in the paper-work to purchase the home as purchase and sale agreements tend to be supplied by the builder/developer.
When you buy a pre-sale (a home not completed at time of sale), you will like the fact that you’ll have better selection opportunities and can choose your colour scheme and various options. Buying presale also provides you the opportunity to plan ahead, allowing you the time to budget, plan your move and sell your current home if necessary. However, there are some fundamental items to consider.
1. Get Pre-Qualified It is highly recommended that you get yourself pre-approved before you shop around so that you know what you can afford. There are many on-line tools in today’s world to get some initial numbers together but recommend speaking to a financial representative. These financial advisors assess your current ability to borrow money, often granting you a mortgage “pre-approval”.
2. Deposit Now that you know what you can afford, it’s time to shop around. Because you are buying a pre-sale with completion from 6 months and up for a townhome or single family home or up to two years for a condo, you are not expected to pay for the home all at once. Most presale homes require a total deposit of 15-20% of the purchase price. Developers are often subject to requirements from their banks which is why this deposit amount is needed. Some developers offer limited opportunities to buy with 5% or 10% deposit, particularly if it is getting close to completion. The deposit is typically based on the purchase price before any upgrades or custom options. Some developers require 100% of these customization cost while others require only 30-50%.
3. Arranging for a Mortgage It is strongly recommend that your financing be in place at time of signing the agreement. This allows you the opportunity to hold a mortgage rate based on today’s rate – even if you won’t start paying your mortgage for some time. By locking in at today’s rate, you will protect yourself from climbing rates over the time you may be waiting for your home to be built. In addition, you’ll have a good understanding of what your costs will be when you complete. Shop and compare what different banks are offering. In some cases, the developer/builder can often attain special discounted rates.