Buying your first home comes with challenges, rewards and, in some instances, pitfalls. For a lot of first-time buyers, the way onto the real estate ladder starts with a condominium property.
Buying a presale property, usually a condominium, means you are purchasing the property before it is built. This is a great way to buy a brand-new home, but how do you navigate the process? Here are some useful tips, as well as some of the pitfalls you can avoid.
How Do You Get Started?
- Find a realtor who specializes in the presale market. Having someone who understands the process, from start to finish is vital, especially for first-time buyers with little or no experience in this area.
- Get mortgage pre-approval so you know how much you can spend. Once you have this information, you can narrow down potential properties for consideration.
- Research and review potential developments with your real estate agent. Find ones with the type or style of unit you want to live in and don’t forget to look at which amenities will come with the property. Is it important for you to have a fitness facility or swimming pool in the development? What about parking? Ask questions early in the process before you make any major decisions.
- You should also research the developer to see what kind of builder they are. If they have a less than stellar history, you may want to steer clear of them. How many developments have they completed, were they completed on time or were buyers left hanging?
Financing
Once you’ve found your potential new home, you’ll need to understand the financial components of the transaction.
-
Deposits
-
- Since every presale contract is different, read the terms carefully so there are no surprises later on.
- Once you’ve found the right development, and you have an accepted offer, you’ll need to make a small initial deposit of usually 5% to 10% of the purchase price.
- Often, there will be an additional deposit schedule so that you bring the total deposit to 20% before construction is completed. Dates and amounts should be clearly stated to avoid any misunderstandings or confusion.
-
Mortgage
-
- While you should secure pre-approval for a mortgage, a mortgage on a presale unit will not be needed until closing (usually on completion of the construction).
- Not all mortgage lenders will give preapproval on presale units since construction completion can be a year or two (or more) away.
- Mortgage payments won’t commence until construction on your unit is complete and the title can be transferred to you.
- It is important to stay in contact with your mortgage broker or lender throughout the process as your financial situation may change, interest rates may change or there may be other factors that affect your ability to secure a mortgage.
- Try to secure a commitment letter from your lender that locks in your interest rate if the presale development will be completed in less than two years.
Pitfalls
While buying a presale unit can be an exciting and positive experience, there can be pitfalls to be navigated as you move through the process.
-
Construction Delays
-
- Since you are buying a property that has not yet been built, be prepared in the event the developer experiences construction delays.
- There may also be changes to floor plans due to unforeseen circumstances. Be aware this is a possibility to avoid disappointment later on.
- Have a backup plan in place. If your completion date is nearing but the project has been delayed, make sure you have alternate living arrangements in place in case you need to move out of your current location by a specific date.
-
Strata Fees
- Once the development is complete and the strata have been established, you will need to start paying strata fees.
- Make sure you understand what is included and how much per month you will be paying.
- Typically, the more amenities the development has, the higher the monthly strata fee will be.
-
GST And Property Transfer Tax
- Since you are purchasing a brand-new property, GST will be payable on the purchase price.
- Property Transfer Tax will also be payable at the time of closing. This is paid to the Provincial Government and depending on the price of the unit, this can be several thousand dollars which cannot be added to your mortgage financing.
-
Market Changes
-
- While you will fix the price of your unit at the start of the process, be aware that markets change over time and although your unit may be valued higher by the time it is built, there is always a chance the market could also drop.
- Are you prepared to live in the unit for longer than you initially thought if the market has declined by the time you move in?
The presale market can be complicated and uncertain. Having a real estate representative to assist in navigating the process is the smartest and best way to go. Not all realtors handle these types of transactions, so find one with the right experience to guide you.
