Are you considering buying a pre-construction home but feeling uncertain about the mortgage process? It's natural to have questions, and we're here to provide answers that will help you navigate the world of pre-construction real estate with confidence. In this article, we'll address common queries and shed light on key aspects of obtaining a mortgage for your dream pre-construction unit. Plus, we'll introduce Olea Financial, your ideal partner in securing the right mortgage for your new home.
Do I Need a Pre-Approval to Get a Pre-Construction home?
The necessity of a pre-approval varies depending on the developer and the specific project. Most developers, however, will require at least a letter of intent from a mortgage broker.
When a project is several years away from completion, predicting your financial situation can be challenging. In such cases, a letter of intent from a mortgage broker attesting that you qualify for a mortgage or will be comfortable obtaining one by the project's completion is often requested. Some developers may even require a pre-approval from specific lenders, such as major Canadian banks, as if you were taking possession of the unit immediately.
How Do I Go About Getting a Mortgage?
The most efficient way to secure a mortgage for your pre-construction purchase is to work with a reputable mortgage broker. These experts are well-versed in the industry, maintain strong relationships with numerous lenders, and stay up-to-date on rates, fees, and incentives. Collaborating with a mortgage broker can often lead to better rates and terms than approaching lenders directly.
And here's the best part: using a mortgage broker doesn't cost you anything! They are typically free to use, except in cases where your credit score falls short for A or B lenders, and you need to consider private lenders. Mortgage brokers can also assist in obtaining your pre-approval and gathering necessary documentation.
When Do I Need to Get a Mortgage?
Your mortgage journey officially begins upon the final closing of your unit. This date may or may not align with your occupancy date.
Your final closing occurs when the developer completes the building, registers it, and transfers your unit's title to your name. At this point, you must make your full payment for the unit, unless you plan to cover the entire cost with cash.
To ensure a smooth process, it's wise to have your mortgage arranged well in advance. This allows time to compare rates, select the right mortgage product, and gather required documentation. A good rule of thumb is to start the process at least a couple of months before the final closing date. A mortgage agent can be invaluable during this process, making your life considerably easier.
Do Developers Require a Specific Lender(s)?
While some developers may specify particular lenders in your Agreement of Purchase and Sale, this is quite rare. Most developers are flexible and accept mortgage commitments from mortgage agents or A and B lenders. The Canadian lending institutions have excellent reputations, and B lenders are often backed by A lenders. Thus, the practice of specifying a lender is increasingly uncommon.
How Does the Deposit Work Vs. a Down Payment?
In the world of pre-construction, the terms "deposit" and "down payment" are used interchangeably, but there's a subtle difference.
A down payment represents the total amount paid towards your unit before you move in. It consists of multiple deposits, usually totaling 20%. The typical deposit structure might look like this:
$5,000 with the offer
Balance of 5% due in 30 days
Next 5% in 90 days
Next 5% in 180 days
Final 5% at occupancy
Although some projects may offer different deposit percentages, 20% is the most common.
Upon taking possession of your unit, you'll pay the remaining amount through a mortgage, provided you're not paying in cash.
Conclusion
Starting the process of purchasing a pre-construction unit often only requires securing a pre-approval or letter of intent. This step can provide you with a clear understanding of your financial capabilities, reducing surprises and stress down the road.
As you embark on your pre-construction journey, consider Olea Financial as your ideal partner in securing the right mortgage. Their experienced mortgage brokers will guide you through the process, ensuring you find the best rates and terms for your dream home. Don't hesitate to contact Olea Financial today and take the first step toward your future pre-construction home.
Contact Olea Financial now and secure your pre-construction mortgage with confidence!
