If you are in the market to buy a property, you have probably asked yourself the following question: “Should I buy something now or pay a down payment and purchase a presale?”
Pre-sale is generally done when the development has not been completed. Majority of presales take place before the construction has commenced, as the developer needs to have a set number of sales before starting/ applying for their building permit.
With presale homes, you get to choose your home and the finishings. It will be brand new and to your liking. It would also be under the homeowners’ warranty. These 2, 5, 10 year warranties covers you on a range of items from small to big-ticket expenses or special levies issued by Strata in older homes.
Another benefit is that aside from your down payment, you have some time to come up with the remaining amount needed to close. This is especially favorable if your current credit or income situation doesn’t allow you to get approved for a mortgage on a property. Buying presale will give you some time to help you improve your credit and income so that you can close when your home is complete.
It’s important to also note the disadvantages associated with presale developments. Although the developer estimates a time frame, you must be prepared to be flexible with the completion date. In some case the homes are available earlier and in most cases later than the anticipated date.
The interest you could earn on your down payment should also be calculated, as most developers do not pay you any interest for putting your money down. If currently renting, your rent should also be calculated as an added cost until the project completes. Lastly, it is anticipated and hoped that the price of your home will have increased in value by the time construction is completed but that is never guaranteed for any property.
Your mortgage rate/ lending guidelines may have significantly changed by the time the project has completed. Most developers have a contract in place where a lender guarantees a rate until the project completes. These rates are higher than current market rates as the rate is held for 2-3 years. If you were looking for a more competitive rate/ better value on your mortgage you would have to wait until closer to your completion to work with a mortgage professional. They can usually hold the rate for 90-120 days (some lenders will allow up to 180 days for new constructions). Lastly, keep in mind any taxes such as GST and provincial taxes that you will be paying on top of your purchase price.
Talk to your adviser about the benefits of presale vs. purchasing now and see what option suits you more.