With the Bank of Canada announcing that it\u2019s holding its policy interest rate at 2.75%, new and aspiring homebuyers are likely to wonder if this is a good time to buy. With economic uncertainty in the air, will interest rates go up in the future? Is it better to wait in case they go down? While no one can predict where interest rates are headed, experts can agree on one thing: homeownership decisions should be based on your individual goals and circumstances \u2013 not speculation.<\/p>\n
But if you\u2019re looking for an edge in today\u2019s market, one idea to explore is buying a new construction home. Even if the home isn\u2019t ready for a year or so, you can take advantage of today\u2019s rates and home prices. And, for buyers finding it a challenge to come up with a lump sum down payment, the payment structure of new construction homes offers an alternate path \u2013 one that can make it easier to enter the housing market.<\/p>\n
Laying The Foundation : Spreading Out Your Down Payment Over Time<\/strong><\/p>\n For first-time homebuyers in Canada, one of the biggest obstacles to ownership is saving for a down payment. While there are some programs and accounts that make it easier to save for a first home \u2013 in fact, you may already have a bit saved up in a Home Buyer\u2019s Plan (HBP) or a First Home Savings Account (FHSA) \u2013 it can still be a challenge to save up the full amount you need. And you may be itching to make a move now! This is where buying a new build home can provide an edge.<\/p>\n That\u2019s because when buying a new home from a builder, you provide the down payment in installments, over the course of months or years. \u2022 Initial Deposit : 5% of the purchase price at the time of signing the agreement<\/em> While the goal \u2013 homeownership \u2013 is the same, the process of buying a new construction home differs from purchasing a resale property.<\/p>\n Resale : When you buy resale, you tour the existing home, walk through each room and imagine how your furniture will fit. You can meet the neighbours, explore the local area, and move in relatively quickly.<\/p>\n New Build : Buying a new build often involves choosing a floor plan from a model home or builder\u2019s catalogue. And depending on the stage of the development, you may get a choice of layouts, sizes and even lots.<\/p>\n What\u2019s more, you often get to personalize finishes and colour schemes \u2013 even if you buy mid-way through a project. No need to strip wallpaper or renovate outdated kitchens! You\u2019re also starting fresh, with the latest brand-new energy efficiency technology and no need for immediate repairs, just use your imagination (or an AI tool) to help visualize your finished space.<\/p>\n The paperwork involved in buying new is also a bit different. While it\u2019s always a good idea to get a pre-approval so you know how much you can afford (whether you\u2019re buying new or resale), the steps that follow do change.<\/p>\n For instance, once you have landed on a model and lot, with a new construction home you\u2019ll sign a builder\u2019s purchase agreement \u2013 this is different from a resale offer. This agreement will outline the purchase price, deposit schedule, closing date, as well as the terms for choosing upgrades. You\u2019ll then work with the builder to iron out the details before signing.<\/p>\n Additional Factors to Consider for A Pre-Construction<\/strong><\/p>\n While buying new comes with perks, there are some things to keep in mind :<\/p>\n \u2022 The purchase Agreement :<\/strong> Anytime you enter an agreement, it\u2019s important that your interests are protected. This is especially true when you\u2019re making perhaps the biggest purchase of your life. Builder agreements are generally more complex and have additional clauses compared to an agreement for an existing property, so it\u2019s a smart idea to get the agreement reviewed by a lawyer who is familiar with new builds. Your lawyer can interpret the agreement for you, negotiate with the builder and make sure that as a buyer, you\u2019re protected against things like changes in the project timeline, legislation, or material costs.<\/p>\n \u2022 Cancellation Clauses :<\/strong> If your situation changes and you need to cancel the purchase, you may lose out on your deposit(s). In some cases, you could opt out of the purchase and assign it to someone else, but you may still be out some cash.<\/p>\n \u2022 Building Delays :<\/strong> Construction delays can happen. Be prepared for potential changes to your timeline and be sure to budget and plan accordingly.<\/p>\n \u2022 Upgrade Costs :<\/strong> If you\u2019re getting upgrades, it may increase the purchase price of the home \u2013 it\u2019s a good idea to work with an RBC Mortgage Specialist to discuss your options when it comes to funding upgrades.<\/p>\n Advantages for First-Time Homebuyers in Canada<\/strong><\/p>\n For many home buyers, there is meaningful upside to buying a new build \u2013 especially for first-time homebuyers, newcomers to Canada or even current homeowners looking to upgrade. Here are some of the highlights :<\/p>\n \u2022 Time to Secure Your Down Payment : You don\u2019t need to provide the full 20% down payment up front. So, you get you more cash flow flexibility and time to save.<\/p>\n \u2022 Firm Mortgage Credit Approval : Some financial partners, such as RBC, provide a firm mortgage credit approval that lasts from start (when you sign your purchase agreement) to finish (when the home is built and the sale closes). In other words, when you get approved, you stay approved.<\/p>\n \u2022 Lock In Your Interest Rate : In some cases, you can also lock in the interest rate for the duration of the build, mitigating the risk of interest rates going up between purchase and move-in. RBC, for instance, also lets you take advantage of falling rates.<\/p>\n \u2022 Start to Build Equity : You get to take advantage of today\u2019s home prices \u2013 so if the value of the property goes up between the time you purchased and the time you move in, you may have the potential to build home equity.<\/p>\n \u2022 GST Relief : The federal government has announced a GST rebate for first-time home buyers who are purchasing a new build. When introduced the rebate will remove the GST on new homes at or under $1 million and lower it on homes between $1 million and $1.5 million for all first-time buyers.<\/p>\n Buying a new pre-construction home can be a smart and flexible way to step into the housing market \u2013 especially in today\u2019s interest rate environment. And with an<\/p>\n RBC Builder Mortgage you\u2019ll have the ability to spread out your deposit, lock in your mortgage rate, and secure your home at today\u2019s prices, all while having the peace of mind that comes with a firm mortgage approval.<\/p>\n Remember, while the building process can be long, it\u2019s never too early to secure your firm approval and lock in your rate \u2013 your future self will thank you for it! After all, there\u2019s no commitment to a mortgage until closing day\u2026 and you could benefit if rates go down before you finalize your purchase.<\/p>\n
\nThe deposit schedule is outlined in the purchase agreement \u2013 and it\u2019s usually available on the builder\u2019s website \u2013 so as a buyer, you know in advance what your financial commitments look like. Here\u2019s a common schedule :<\/p>\n
\n\u2022 Second Deposit : 5% within 90 days<\/em>
\n\u2022 Third Deposit : 5% within 180 days<\/em>
\n\u2022 Final Deposi t: 5% within 365 days or at the time of occupancy<\/em><\/p>\n