The pros and cons of buying pre-construction when it comes to your mortgage

A lot of Canadian homebuyers are constantly looking for an affordable point of entry into the housing market. When it comes to buying a home, you have two options: Resale or pre-construction, whether it’s a condo, a lowrise property or a single-family home. Going the pre-construction route is typically a preferred option for several reasons, especially among first-time homebuyers. However, it’s essential to understand everything that’s involved before you sign on the dotted line and how major life changes may impact your affordability over time.

THE PROS OF BUYING PRE-CONSTRUCTION

An easier point of entry for first-time buyers

More often than not, buying a pre-construction home can mean paying a lower purchase price due to discounts and incentives offered by a homebuilder. Additionally, buyers can take advantage of a staggered schedule for their down payment as the home is being built. This can be helpful, because you’re not required to empty your pockets at the onset of your home purchase.

A fixed price with no bidding war

Another key advantage of buying a pre-construction home, is that the price is fixed and there is no chance of a bidding war. Many buyers find the mortgage and buying process to be stressful to begin with – so having the peace of mind that there aren’t any competing offers against yours is a big relief.

A good investment opportunity

Buyers should also know that purchasing a pre-construction property can often make for a good investment opportunity. This could be an excellent way to build equity and see large gains in your property value before you even move in. Many use this strategy to buy in early on a project, hold it for a few years to build equity and then sell the property and benefit from the increase in price. However, given the current state of the housing market, it’s important to consult a qualified mortgage professional to know your affordability, as well as a real estate professional like ours at Homewise Real Estate who understands market cycles and your investment time horizon.

POTENTIAL CONS OF BUYING PRE-CONSTRUCTION

A chance of delays and uncertainty

The process of pre-construction can be uncertain, as delays may occur. Longer wait times can defer your move-in date – so if you’re planning to pack up and settle in shortly after purchasing, this may not be your best choice. In most cases with a pre-construction home, you’re essentially buying a property that doesn’t yet exist, and this can be nerve-wracking for some buyers.

A higher down payment may be requested

Buyers should also keep in mind that although pre-construction homes come with a staggered payment schedule, they may require a deposit of up to 20 per cent of the purchase price. This can be a significant financial commitment for buyers. The best thing you can do is get pre-approved for a mortgage to gain better clarity on what you can afford and if this is the right move for you..

Bonus: Focus on your time horizon

Whether you are buying a home that will be completed in 12 months or five years, your financial situation will affect your ability to close. It is key to work with a mortgage advisor who can help you understand the dos and don’ts between the sale and closing date.

Pro tips

• Don’t lease a new car in between that time unless your income has increased.
• Consult with your mortgage advisor if you plan on switching jobs close to your move-in date.
• Keep your debts low to zero when it’s almost time to move in.

What’s right for you depends on your budget, your time horizon and your comfort level. It’s important for buyers to do their research, review their finances and carefully consider whether this is a suitable option for them and their future.