If you’ve ever wondered how to buy a presale condo but have been intimidated by the unfamiliarity of the process, this how-to guide is for you. First-time homebuyers and individuals new to the presale or pre-construction condo market typically have many similar questions, all of which are straightforward and easy to answer. Once you’ve taken in the information below, you’ll know exactly how to buy a presale condo. The only thing left to do will be to find the new development that’s right for you. Here’s how to buy a presale property.
Defining a Presale Condo
Presale condos are brought to the market by a developer before the units are built. Buyers can choose to put money down on presales and own the rights to a future home. Buyers still eventually pay the condos’ full price, but until the property is completed, a home loan isn’t needed. This gives buyers the opportunity to leverage their initial investment, should the market rise while the presale is being built.
Deposits, Trusts, and Deposit Schedules
The most frequently asked questions about presale condos are surrounding deposits. When purchasing a presale, the first step is to place a deposit down on the property. Typically, there is a small initial deposit due at the time of writing an offer, followed by a 5% to 10% deposit on the agreed purchase price due after a rescission period (more on that next). From here, presale condo deposits are scheduled to be made over a specified period of time, with more large payments being due between your first payment and the date of completion. Here’s a look at a hypothetical deposit schedule for presale condos. Remember that every presale contract is different, so this is just an example of a deposit schedule.
-June 1, 2021: You find the perfect presale condo and put down $10,000 upon writing your offer.
-June 8, 2021: After a 7-day rescission period, the remaining 10% of the purchase price is due.
-June 1, 2022: An additional 5% of the purchase price is due.
-December 1, 2022: An additional 5% of the purchase price is due.
At this point, you’ll have a 20% down payment made on the purchase price of your condo, which is relatively common in today’s market. Once the building is complete, you’ll be ready to secure a mortgage and move into your new home. Deposits are held in a trust account, and developers won’t gain access to the funds until construction is complete. Before we move onto how mortgages work with presale condos, let’s review rescission periods.
Rescission or Cooling-Off Periods
A rescission period is put in place to protect buyers and give them a period of time to cancel the contract should they have a change of heart. Two things must occur for this period to begin - the purchaser must sign a form acknowledging they’ve read the Disclosure Agreement, and the purchase of sale must be signed and legally binding.
Once those two agreements have been completed, the rescission period officially begins. The length of this period varies by province, with British Columbia having a 7-day window for buyers to rescind on a deal, and Ontario having a 10-day rescission period, or “cooling off” period, as it’s often called.
While you’ll likely need preapproval if you’re buying a presale condo, you won’t need to secure or start paying a mortgage until your property is fully built, with your mortgage loan payments beginning upon final closing. This is when the building is officially registered with your city and when you get the title to your condo.
When it comes to interest rates, you can likely lock in a rate if you’re purchasing a presale condo that will be completed in less than two years. Speak to your bank or mortgage broker and request a commitment letter to lock in rates if you’re trying to secure a mortgage at today’s rates.
Your building’s developer will play a massive role in your presale experience. Developers can delay completion dates, offer amenities like parking and storage space, or even cancel projects entirely in worst-case scenarios. It’s critical that you research the developer extensively and only purchase a presale condo from a company you trust.
Working with an agent is free for buyers, which is just one of the many reasons you should work with an agent when purchasing a presale property. Developers will pay the commission to the buyer’s agent upon the sale completion, leaving buyers with the confidence of knowing that they have representation throughout every step of the presale process. An experienced agent will help you negotiate layouts and amenities with developers and be there to guide you through any questions or concerns you may have about purchasing a pre-construction property.
Here are seven reasons you should always use a buyer’s agent.
Interest in presale properties is high in many major Canadian cities. Many homeowners are interested in selling in a few years but are interested in investing in a property today. Prebuilds also offer the opportunity for new homebuyers to leverage their initial deposit, which has proven to be highly profitable for many investors in the past. These investment opportunities, mixed with the ease of living that comes from moving into a brand new condo and extended warranty insurance, make presale condos a desirable option for many homebuyers.
The most considerable risk of buying a presale condo is simple: you don’t know what the market is going to look like when your condo is completed. Of course, not knowing what the market is going to do is a risk associated with any investment. If you’re financially prepared for worst-case scenarios and do your research on the area, market, and developer you’re working with, there’s a good chance that the potential benefits of purchasing a prebuild condo outweigh the potential pitfalls.
Original article from rew.ca