Real Estate

Loan for Pre-construction Condos

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  • Sep 21st, 2016 8:43 pm
Deal Addict
Jan 3, 2012
1275 posts
33 upvotes
Mississauga

Loan for Pre-construction Condos

Hello Everyone,

I am a first time home buyer interested in buying a pre-construction condo. Normally every pre-construction condos have a deposit structure. For example,

$5,000 on signing
Balance to 5% in 30 days
5% in 180 days
5% in 450 days
5% on Occupancy

Is there a way i can get a loan from a bank that would help me meet this deposit structure? I have a good credit history/rating and very small debt

thanks
9 replies
Deal Addict
Nov 22, 2004
1621 posts
766 upvotes
GTA
You can apply for a line of credit and use that as needed.
CPA. Realtor.
Deal Addict
Nov 29, 2005
1290 posts
184 upvotes
Winnipeg
Expect to pay a higher rate as it is not secured against an asset.

Make sure you are pre-approved at the bank for the mortgage you will eventually get (plus give yourself some buffer). Also keep in mind that purchase price does not always = property value so your mortgage could be based on the assessed value at closing vs the original purchase price. Example: You bought for $350K 2 years before being built, upon closing the builder has many unsold units and sells a bunch for a 10-15% discount 60 days before construction is complete. Bank will assess the value of the property based on the last few units sold (current market value) and mortgage value could be based on that amount. You won't see this occurring when prices are increases significantly each year but rather if future price increases were to significantly slow/plateau/drop.
Deal Addict
Jan 3, 2012
1275 posts
33 upvotes
Mississauga
Bunkhouse wrote: Expect to pay a higher rate as it is not secured against an asset.

Make sure you are pre-approved at the bank for the mortgage you will eventually get (plus give yourself some buffer). Also keep in mind that purchase price does not always = property value so your mortgage could be based on the assessed value at closing vs the original purchase price. Example: You bought for $350K 2 years before being built, upon closing the builder has many unsold units and sells a bunch for a 10-15% discount 60 days before construction is complete. Bank will assess the value of the property based on the last few units sold (current market value) and mortgage value could be based on that amount. You won't see this occurring when prices are increases significantly each year but rather if future price increases were to significantly slow/plateau/drop.
Then what would you suggest? For someone who does not have 60K saved for downpayment and still wants to buy a property? So basically i will be paying 200-300$ a month for my loan to the bank and also around 1200$ for mortgage correct?
Member
Sep 29, 2015
279 posts
81 upvotes
Winnipeg, MB
Get a line of credit to cover the deposits.. When you do your mortgage roll the line of credit into your mortgage...

Of course you still need to come up with the 5% minimum cash, you can't finance 100%. Better yet 20% to avoid cmhc.

Talk to your bank, they will tell you what your options are.
Deal Fanatic
Nov 22, 2015
7851 posts
8801 upvotes
saadt1988 wrote: Hello Everyone,

I am a first time home buyer interested in buying a pre-construction condo. Normally every pre-construction condos have a deposit structure. For example,

$5,000 on signing
Balance to 5% in 30 days
5% in 180 days
5% in 450 days
5% on Occupancy

Is there a way i can get a loan from a bank that would help me meet this deposit structure? I have a good credit history/rating and very small debt

thanks
I don't think it's a good idea to buy a condo if you have nothing saved up.

Home ownership is a huge responsibility and carries massive expenses in addition to the mortgage payments. How are you going to live when your mortgage is $1200/mo, loan $300/mo, property tax $300/mo, heat & hydro $150/mo, other utilities and Internet $100/mo. You're looking at over $2000/mo and you haven't even covered transportation, groceries or other basic needs.

Also, banks won't approve an unsecured loan or line of credit for a downpayment on a property. You would have to commit fraud by lying about the intended usage. You'd also have to lie on your mortgage application as they will ask you to show proof of down payment - you must have a paper trail of where your down payment came from, and it cannot have been from borrowed funds.

All in all, it's a terrible idea to buy a condo that you can't afford. Wait and save up your down payment.
Deal Addict
Jan 3, 2012
1275 posts
33 upvotes
Mississauga
superfresh89 wrote:
saadt1988 wrote: Hello Everyone,

I am a first time home buyer interested in buying a pre-construction condo. Normally every pre-construction condos have a deposit structure. For example,

$5,000 on signing
Balance to 5% in 30 days
5% in 180 days
5% in 450 days
5% on Occupancy

Is there a way i can get a loan from a bank that would help me meet this deposit structure? I have a good credit history/rating and very small debt

thanks
I don't think it's a good idea to buy a condo if you have nothing saved up.

Home ownership is a huge responsibility and carries massive expenses in addition to the mortgage payments. How are you going to live when your mortgage is $1200/mo, loan $300/mo, property tax $300/mo, heat & hydro $150/mo, other utilities and Internet $100/mo. You're looking at over $2000/mo and you haven't even covered transportation, groceries or other basic needs.

Also, banks won't approve an unsecured loan or line of credit for a downpayment on a property. You would have to commit fraud by lying about the intended usage. You'd also have to lie on your mortgage application as they will ask you to show proof of down payment - you must have a paper trail of where your down payment came from, and it cannot have been from borrowed funds.

All in all, it's a terrible idea to buy a condo that you can't afford. Wait and save up your down payment.
Saving like 60k for 20% downpayment would take me 3-5 years.

Nowadays, I'm also seeing pre construction condos advertisement with only 5% down. How about going with 5% then? Any disadvantage?
Member
Nov 24, 2015
375 posts
223 upvotes
Toronto, ON
Builders usually have preferred mortgage lenders usually either BMO, RBC, or TD. These can give you loan for 10% of deposit once you show them proof that you have already paid 10%.

You can ask the builder sales office for the bank mortgage specialist who should explain you their lending criteria.

As the poster suggested above you may be better off saving a bit before buying.
Deal Guru
User avatar
Feb 2, 2014
11233 posts
3351 upvotes
Toronto
saadt1988 wrote:
Bunkhouse wrote: Expect to pay a higher rate as it is not secured against an asset.

Make sure you are pre-approved at the bank for the mortgage you will eventually get (plus give yourself some buffer). Also keep in mind that purchase price does not always = property value so your mortgage could be based on the assessed value at closing vs the original purchase price. Example: You bought for $350K 2 years before being built, upon closing the builder has many unsold units and sells a bunch for a 10-15% discount 60 days before construction is complete. Bank will assess the value of the property based on the last few units sold (current market value) and mortgage value could be based on that amount. You won't see this occurring when prices are increases significantly each year but rather if future price increases were to significantly slow/plateau/drop.
Then what would you suggest? For someone who does not have 60K saved for downpayment and still wants to buy a property? So basically i will be paying 200-300$ a month for my loan to the bank and also around 1200$ for mortgage correct?
You're only paying the interest on the loan until the property closes. Upon closing, you can get a mortgage up to 95% LTV.

You will need the 5% down from savings plus 1.5% for closing costs. Do you have this saved up?

It may be tough to get unsecured debt of $60k...perhaps you should seek developments with less than a 20% deposit. I would also consider resale properties, as the deposit and closing costs are much smaller.

How much do you have saved up?
Kevin Somnauth, CFA
Principal Broker/Owner - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
Deal Addict
Jan 3, 2012
1275 posts
33 upvotes
Mississauga
CdnRealEstateGuy wrote:
saadt1988 wrote:
Bunkhouse wrote: Expect to pay a higher rate as it is not secured against an asset.

Make sure you are pre-approved at the bank for the mortgage you will eventually get (plus give yourself some buffer). Also keep in mind that purchase price does not always = property value so your mortgage could be based on the assessed value at closing vs the original purchase price. Example: You bought for $350K 2 years before being built, upon closing the builder has many unsold units and sells a bunch for a 10-15% discount 60 days before construction is complete. Bank will assess the value of the property based on the last few units sold (current market value) and mortgage value could be based on that amount. You won't see this occurring when prices are increases significantly each year but rather if future price increases were to significantly slow/plateau/drop.
Then what would you suggest? For someone who does not have 60K saved for downpayment and still wants to buy a property? So basically i will be paying 200-300$ a month for my loan to the bank and also around 1200$ for mortgage correct?
You're only paying the interest on the loan until the property closes. Upon closing, you can get a mortgage up to 95% LTV.

You will need the 5% down from savings plus 1.5% for closing costs. Do you have this saved up?

It may be tough to get unsecured debt of $60k...perhaps you should seek developments with less than a 20% deposit. I would also consider resale properties, as the deposit and closing costs are much smaller.

How much do you have saved up?
I should have 15k in my rrsp soon and I should be able to afford closing cost too

I also just found out that there are some pre construction condos with only 5% payment....so I will look for those instead as they are very easy to get

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