$5,000 upon signing the Agreement of Purchase and Sale
When looking to purchase a condominium, there are essentially two choices – resale or pre-construction. There are advantages and disadvantages to both, however when buying new, there are some details you should be aware of that differ from a typical resale.
Unlike When buying resale where you could have a down payment as low as 5%, buying directly from the builder requires a minimum down payment of typically 20-25%. This may seem like a lot, especially for first time buyers, but this may be an advantage as there will not be additional CMHC loan premium insurance costs and this will reduce your monthly mortgage payment. In addition, the deposit is paid in installments, so it does allow for some time to save. A payment schedule could look like this:
Balance of 5% in 30 days
5% in 120 days
5% in 350 days
5% at occupancy (see below)
Development and educational levies ($500-$6000)
TARION Warranty enrolment fee ($900-$1200)
Utility hook-up fees ($1000-$2000)
Misc. fees (law society of Ontario, discharge of builder’s mortgage, etc.) ($200-$500)
Assignment fees (if you sell before final closing, or ‘flip’ your unit) ($3000)
Occupancy fees (see below)
TIP: Your Realtor may be able to negotiate a better deposit structure for you.
10-day Cooling Period
By-law in Ontario, anyone who buys a new property from a builder has a 10-day cooling off period, during which they can rescind their offer with no penalty. This also allows time to do 2 things: 1) have your Agreement of Purchase and Sale reviewed by a real estate lawyer, and 2) obtain a mortgage approval for your purchase to satisfy the builder’s requirements.
TIP: Sometimes lenders work with specific builders to offer special rates and incentives.
When you buy pre-construction, there are some additional closing costs that you do not incur when buying resale. Estimates are hard to make because they vary by developer, but averages are outlined below:
TIP: some of these closing costs can be capped at a maximum figure so it’s important to have Realtor and a lawyer who are experienced in pre-construction condos on your side to help you negotiate these terms with the builder.
When buying new, there is usually a short period of time between when occupy the condo and when you actually receive title to your condo, known as the occupancy period. During this time, you must pay the developer for the right to occupy the suite. The amount of the occupancy fees is more or less equivalent to interest on the amount outstanding on the purchase price + monthly property taxes + condo fees. You will only pay occupancy fees until your final closing, where you begin paying for your mortgage, but you will never have to pay both at the same time.
Learn more about Occupancy & Interim Closing
TIP: to minimize your occupancy fees, buy as high up into the building as possible. Buildings take occupancy from the ground up, therefore the higher your suite is in the building, the shorter your occupancy period will be.
Final closing when the building is finally registered and your occupancy period is over. This is when your mortgage payments begin and you officially own your unit. You can choose to put down additional funds on your condo if you want to have more than the typical 20-25% that most builders require.
TIP: remember that you can shop around for the best mortgage rate right up until final closing, so even if you obtained an approval during your 10-day cooling off period. You can even choose a different lender if you like. That is, your initial pre-approval will satisfy your credit worthiness to the builder, but you can always get another pre-approval from an alternative lender up until you close.
Ashley Lo | Real Estate Advice, Real Estate Solutions
Interest rates are at historical lows! In the 1980’s, interest rates were at all time highs at about 18%. Now, interest rates are at all time lows! We are seeing interest rates such as 2.99% for a 5 year fixed term! The only caveat is that lending rules are becoming more and more stringent, so if you can approved, go for it!
A couple of weeks ago, I did a home buyer seminar. I got a lot of good feedback so I decided, why not share some of the key points?
We are not in a bubble! Contrary to what some people may say, we are not in a housing bubble! A bubble is It is characterized by rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline. We did see this in the late 1980’s when average percentage increase in the years leading up to the peak was 22%! Between 1986 and 1987, there was actually a 36% increase! In the past couple of years, we’ve been seeing increases, on average, at about 6%. (See previous post – The Canadian banking system is unlike the States)
The Canadian GDP is correlated with Toronto housing prices. There is a strong correlation between Canadian/Ontario/Toronto GDP and Toronto housing prices. The last time we saw a deviation, it was during the housing bubble in the 1980’s. Currently we are seeing a steady growth in Toronto GDP, which is expected to increase about 13% from 2010 to 2015! This is also in line with Canadian GDP growth.
Other factors. What can I say, Toronto is a great city to live in! Due to high immigration, population is expected to grow by 1 million people in the next decade. That’s an increase of 33%! Foreign investors also see the potential. We are seeing investors from all over the globe including China, Iran, India & European countries such as Greece and Italy.
There’s no time like the present! If you have any questions, feel free to Contact me.
Ashley Lo | Real Estate Advice, Real Estate Solutions
Full recourse mortgages – Canadians are fully responsible for their mortgage so other assets and potentially future wages can go towards paying off the mortgage. In the States, it is much more likely that the home will just be foreclosed.
A lot of people come to me and talk about how they’re worried about the subprime issue in the States and the same thing will happen to us South of the border. However, the fact is that Canada has weathered through the storm extremely well and none of the banks failed or required any sort of bailout, while in the US, about 200 banks have failed since the beginning of the recession in 2008.
The Canadian banking system is actually much more prudent and resiliant compared to the States. Some differences include:
Low deliquency rates – mortgage payments in arrears are about 0.3% in Canada vs. about 3% in the US, which is already down from almost 10% in 2010!
Different public policies on lower-income housing – the Canadian government does not have policies to encourage homeownership for lower income and less credit worthy borrowers (subprime) like the States did under the Community Reinvestment Act. Instead, the Canadian government provides funding for public rental housing.
Other significant differences are illustrated below is an infographic from RateHub.