You start paying for a new construction home after the closing of the deal and starting your mortgage. A pre-construction home mortgage only starts after the closing, when you get delivery of the home.
When you purchase a new construction home, you will be required to make a deposit following the new construction deposit structure for your builder. Most builders have a similar deposit structure, which allows a percentage based deposit. For example, one home builder may require:
- 5% down at signing
- 5% down in 30 days
- 5% down in 60 days
- 5% down in 90 to 180 days
Since most new home construction projects require a 20% deposit – you’ll be asked to provide this within a specified period.
You don’t have to start paying for a new construction home when you sign the purchase agreement. Most pre-construction homes are delivered in 12 to 36 months, so you will have this time to save money. Similarly, if you’re renting a home – you don’t have to worry about making both rent and mortgage payments.
So, if you’re worried about when do you start paying mortgage on a new build – keep in mind that you only start making payments after the home is built, and you get delivery. It wouldn’t be fair for a homeowner to start making payments and incur interest when there is no product delivered.
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When is Down Payment Due for New Construction Home?
The down payment for a new construction home is due based on the agreed deposit structure from your home builder. The majority of deposits are required within 180 days of signing the purchase agreement. Although your down payment is required in small increments, it is a good idea to have your down payment ready when you are signing the paperwork.
There are a number of things that can happen – whether it’s your employment or a family emergency. It’s why we recommend new construction home buyers to have the full down payment in the bank before agreeing to purchase a home.
Can You Negotiate Deposit Structure on a New Home?
You can negotiate the deposit structure with your home builder. A new build home will require a 20% down payment, but you can extend the deposit structure. It will allow you to build your equity over a longer period of time to make your deposit. There are home builders who offer an extended deposit structure – up to 180 to 365 days.
When Do You Close on a New Construction Home?
When you sign the purchase agreement, you are given your closing date. This date is an estimate of when the new build home would be ready. Builders can have delays, and this will impact your closing date. Your home builder is required to tell you every time there is a delay in the closing date.
We had a Toronto couple who shared their complete timeline for buying a new construction home. They shared valuable details on all the delays, extra costs and issues they faced buying a new build home. Despite purchasing a pre-construction home during the pandemic – Pras and Linoja were fortunate enough to have their parent’s home to move into for the time being.
What are Closing Costs for New Home Build?
The closing costs for new construction homes include the charges and fees related to the closing of the purchase. This will include title insurance, transfer fees, mortgage fees, lawyer fees and escrow fees. If a home builder has a good relationship with a lender, they may ask you to work with this preferred lender. When using this preferred lender, you will get incentives and have lower closing costs.
So, how much are closing costs on a new construction home? The average closing cost is between two and five percent of the purchase price of the home.
How Long Does it Take to Close on a New Construction Home?
It can take anywhere from 12 to 36 months on average to close on a new construction home. It will ultimately depend on the development, how early you are to get in and possible delays and strikes to name a few.
We’ve seen new home buyers receive their home in 10 months, and some receive their home in 22 months. There are too many factors at play when building a new home.
Keep in mind that there are multiple important dates you need to be available for when building a new home. Depending on how smoothly these milestones go; will also impact the closing date of your new build home. We recommend reading our complete timeline for buying a new construction home. We go into the nitty gritty details of purchasing a new build home in Ontario.
The wonderful graphic designers at 2ELVE Digital recently created an infographic for timeline for new home construction. You might want to pin that somewhere, so you know what to expect when building a new house.
When Do You Start Paying Property Taxes on New Construction Home?
You start paying property taxes on a new construction home depending on when you take possession of the property. The property taxes are paid on March 1 and September 1 of every year to cover the next six months of the year.
New construction homes are likely to have higher property taxes.
Will the Upgrades Increase My Down Payment?
Yes and no. Let’s assume your builder upgrades total to be $90,000 (this is considered low in some areas). The additional cost could be paid by you in cash, but why? The other option is to finance the cost of the upgrades. When you do so, you will be adding this to the cost of the home. Remember that 20% rule, where you have to pay 20% down to avoid mortgage default insurance? Yep, it’s going to kick in here. So you have two options here:
- You add the $90,000 to your existing mortgage amount and fall below the 20% mark and pay a hefty sum of money for mortgage default insurance.
- You pay 20% of the $90,000 on top of your deposit to cover the down payment and finance the remaining 80%. In effect, your down payment would increase by $18,000 and your mortgage principal being borrowed would increase by $72,000.
This can impact a number of things, mainly your qualification for your mortgage. If you barely qualified for a $700,000 mortgage, and now your amount has gone up by $72,000 – what do you think will happen? Yep, you may no longer qualify.
It is crucial that you always take into account the cost of upgrades and closing when budgeting for a new build home. The upgrades alone in some Toronto new construction homes can add up to $150,000 – very quickly!
If you had a pre-approval for a mortgage based on the base price of the model home, it’s time to re-visit your mortgage advisor and see if you can qualify for more.
The upgrades in a new construction home may increase your down payment, the principal mortgage borrowed, interest cost of borrowing and final price of the home.