Our First Home: Buying a pre-construction condo

Our First Home: Buying a pre-construction condo

Throughout Canada, condo buildings add to city skylines at a fast and unstoppable rate. Many buyers remain attracted to the design concepts, glistening architecture and overall modern style that comes with new developments. While resale condos are also popular, their sales still don’t compare with the appeal of living in a fresh-faced building.

If you’re keen on buying a pre-construction condo unit, here are some details you should know.

You’re the first owner

Being the first owner of a condo means that:

  • Customizing your home is up to your imagination. This means you can choose specific details such as flooring, appliances and cabinetry materials before construction occurs.
  • The condo developer may allow you to pay your deposit in a series of installments
  • You’ll pay a 20-25% down payment (but again, in stages).  
  • Your condo fees are at a low rate for a couple years 
  • Your occupancy can start as soon as your unit is ready – no waiting around!

Keeping the three points above in mind, let’s talk about the most important point first: making your down payment.

Making your down payment

Buying a new condo involves doing some extra math so that getting your unit of choice remains a sure thing.  When you buy a resale condo, you can put down as little as 5-10%.  With a pre-construction condo, you’ll put down as much as 25% in stages. This gives you more time to pay and plan out your finances.

Why does a pre-construction condo require a lot of money down as a deposit?

Pre-construction condo projects are sponsored by a bank. Because banks want a return on investment ASAP, the developers have to get a large chunk of your deposit upfront. This usually amounts to a few thousand dollars to start when you sign the pre-construction agreement. After this, you’ll make payments of 5% every 30, 90, and 180 days. Some developers might request deposits at each stage of the building’s construction.


When it’s time for you to occupy your unit, you’ll usually pay the last 5-10% before getting the keys to your home.


On the plus side, after paying the first “chunk” of deposit payments, the developers will have more leeway to accommodate you. Lower occupancy deposits and an extended payment plan are always negotiable, so don’t be afraid to ask.  

Cooling-off Periods

It’s been a couple of days and I’m not sure if I want to buy my condo unit anymore.  I still have 8 days remaining in a “cooling-off period” to reconsider my offer. What’s that?

In Canada, a “cooling-off period” (or rescission period) typically gives you 10 calendar days (weekdays and weekends) to back-out of your housing purchase without financial penalty or loss.


If you still want to buy your home, you should make sure that you talk with your lawyer about getting your mortgage rate and amount pre-approved and that your financial agreements are set in stone.


If you’re calling it quits, however, so long as you cancel your offer before the ten-day period is up, you’ll legally have to get your down payment back in full from your developer.


Occupancy Fees

I have a finished ground floor unit in a high-rise building and want to move in right away! What are occupancy fees and why do I have to pay them?

You pay occupancy fees (or called “interim occupancy”/ “phantom rent”) when you move into a newly-built condo without officially paying the mortgage on it yet. Occupancy fees include maintenance fees, property taxes, unpaid interest on your mortgage, the monthly rental amount and common area fees.


If you live in your unit during this time, the condo building’s construction usually isn’t complete and therefore can’t be registered yet.  This means that you’ll be paying rent to live in your unit until the title is transferred to you.


Occupancy fees can’t be applied towards your mortgage and don’t build equity. Sometimes you might have to wait several months to a couple years before you can both get your title and start paying your mortgage.


The positive aspect of paying these fees, however, is that you can receive the interest you’ve paid on your occupancy fees’ monthly interest refunded to you.


However, if you’re willing to pay the fees, at least you can get a head start on interior decorating!


I still want to move in and will pay occupancy fees. What can I do to lower the amount I’ll be paying to the developers?

If you’re eager to move in but want to pay less in occupancy fees, consider offering a larger deposit. Putting down a larger deposit decreases the interest percentage you’ll be paying on your occupancy fees.  


More well-off people can choose to pay for their unit in-full, but most Canadians don’t have that luxury.

Additional Fees

What are some other fees that arise when buying a pre-construction condo?

There are a few additional fees that you’ll have to cover when you buy your pre-construction unit. This includes paying HST and two months’ worth of condo reserve funding when you close your offer. You may also have to pay closing costs that your development builders incurred, such as utility connection fees and taxes on appliance purchases.


You can get an HST rebate on your unit if you’ll be occupying it as the owner. This refund can help cover the costs of upgrades or extra aesthetic changes you might want to make in the future.  


All in all, buying a pre-construction condo does come with some financial risks, but the pros of being an original unit owner, fancying up your home to your tastes, and enjoying a brand-new building far outweigh the cons.


If you have the cash and an opportunity to buy a unit, go for it – the feeling of new house keys is well worth the wait!


Visit us at Loanerr.ca for more on Financing Your Condo!


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A Maryland native and Toronto-area transplant/graduate of the University of Toronto, Christine is a content writer at Loanerr. When not writing articles, she's an avid swimmer, cat lover, violinist in a indie band, and a humble food aficionada.