Whether you are buying a new build or a resale home, you will be required to place a deposit. The deposit is given at the same time the offer is placed. The deposit gives the seller assurance that the purchaser is serious about buying the home and has all intentions of completing the deal. A deposit also protects the seller in the event the deal falls through. The deposit is paid by certified cheque or money order.

Deposits and Down Payments Are Not The Same

Piggybank Dollar Savings

Many people confuse a deposit with a down payment. They are very different. A deposit accompanies the offer of purchase and is paid to the seller or in this case with a new build, to the builder. The deposit is held in trust by the seller’s lawyer until the deal closes. Whereas the downpayment will include the deposit and any other money the purchaser will pay as the total down payment. The amount of the down payment along with the mortgage amount will total the purchase price of the home. The remaining amount of the down payment and the mortgage will be paid to the seller upon closing the deal.

Deposits For New Homes

Typically the amount of a deposit required by a builder on a new construction home is higher than a resale home. The reason for this is the builder uses the deposit for the remaining construction required to complete the home.

Ontario New Home Warranties Plan

The Ontario New Home Warranties Plan provides the purchaser with deposit protection. An agency is known as Tarion, administers, and enforces the Ontario New Home Warranties Plan Act. Tarion has received its empowerment from the Ministry of Government and Consumer Services. The Act was put into place to protect consumers against losing their new home purchase deposits. The Act provides the following coverage:

For homes sold for $600,000 or less – up to $60,000 deposit protection coverage

For homes sold for over $600,000 – 10% of the purchase price up to a maximum of $100,000 deposit protection coverage

Ontario New Home Warranties Plan For Condominiums

The Ontario New Home Warranties Plan also covers the deposit on the purchase of a condominium. Coverage for condominium deposits is covered up to $20,000.

Enforcement of The Ontario New Home Warranties Plan

In a case in which a builder files for bankruptcy and fails to complete your home, you can make a claim against the builder through the Plan to get your down payment back. Keep in mind there are limits pertaining to deposit protections.

How Much Deposit Is Required On A New Build?

The deposit required for a new home is quite different than on a resale home. Deposits are usually much higher in a new home. A builder may offer a tiered deposit schedule during the construction period of the home. These schedules will vary from builder to builder. An example of this tiered deposit schedule is as follows:

  • 5% of the purchase price with offer
  • 5% of the purchase price within 30 days
  • 5% of the purchase price within 90 days
  • 5% of the purchase price within 180 days
  • 5% of the purchase price at occupancy date

A tiered deposit payment plan can be easier for the purchaser to manage.

Closing Costs

Buyers must also be aware that there are closing costs involved with the purchase of a home. Typically closing costs can be estimated between 1.5% and 4% of a newly constructed home. Closing costs can include:

  • Real Estate Lawyer
  • Land Transfer Taxes
  • Home Inspections
  • Development and Education Levies
  • Hydro Installation
  • Water Installation
  • Gas Installation

The Difference Between The Occupancy Date and The Closing Date

closing date

On a new build, especially if it’s a condominium, the builder will give you an occupancy date and a closing date. The occupancy date refers to the date you can physically move in, but you don’t actually own it until the closing date. The builder will charge you an occupancy fee, which does not go towards your mortgage. Sometimes, in the case of a condominium, the closing date could be three to six months ahead of the closing date. You don’t actually start paying your mortgage until the deal has closed and you officially own the home.

Examples of New Builds

Typically when you buy a new build home, you are buying from a blueprint design of your home. The completion date can vary and may take a few years. Some construction sites offer model homes you can walk through to see the layout and design. Always keep in mind, model homes include all the upgrades, so be sure to ask what is included with the basic model. Examples of new builds can include:

  • Detached Homes
  • Semi-Detached Homes
  • Townhouses
  • Low-rise Condos
  • High-rise Condos
  • Townhome Condos

Advantages of Buying A New Build/Pre-construction Home

There are many advantages to purchasing a new build. Most builders grant purchasers a 10 day period following the offer to purchase to arrange for financing, retain a real estate lawyer and think over the purchase. In the event you change your mind, your full deposit will be returned to you. You can also choose the model of home, the lot, and any upgrades and small modifications you would like done. Condo fees are usually lower with new builds than resales because the unit is brand new. There is no need to endure bidding wars when you buy a new build and risk overpaying. When your new home is being built, you are almost assured it will rise in value. You will also qualify for the New Home Warranty Plan.

Possible Disadvantages of Purchasing a New Build/Pre-construction Home

Quite often construction on new homes can experience some delays. These delays can range from weeks, months, and even years. In reference to condo fees, even though they may be less expensive in the first couple of years, afterwards they can increase by 10 – 20%. New builds require higher deposits and are often staggered. The possibility of having to pay occupancy fees prior to the closing date.

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