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Mortgage Financing For Presale Condos: Is It Doable?

presale mortgage condos

A presale mortgage allows you to purchase a home in the construction phase. You’ll likely have to put down a significant amount of money as a down payment, and the terms of the mortgage will likely be higher than what you’d receive if you got the loan after closing. The benefit of this type of mortgage is that it allows you to purchase a home sooner and at a better price than you would have been able to if you didn’t have this type of loan.

What Is a Presale Condo, And Why Should You Get It?

When it comes to becoming a homeowner, Canadians are spoiled for choice. While many opt to buy a property that’s finished and ready for the big move-in, others will confidently choose to go with presale condos instead. 

A presale condo is a condo that has not yet been built. These are usually bought before being built, so the price you purchased it for can sometimes be less than the value a few years down the line. Presale condos are a great option if you want to purchase a property but can’t afford the expensive up-front cost of a finished condo.

Having said this, buying property before its completion is quite a common move in the Canadian real estate industry. This, in turn, explains why getting a presale mortgage is also high on the average homebuyer’s priority list. 

What Do You Need To Know About Presale Mortgages?

presale mortgage homeowners unpacking

Opting for mortgage finance for presale condos buys extra time and can thus alleviate the payment pressure that comes with a regular payment plan.

However, the home buying journey can be riddled with pitfalls if you’re not paying attention and don’t have relevant information to move forward. 

What most buyers don’t know is that they can’t really be approved for a presale condo if it closes several years or even several months down the line. 

While it may seem harsh, there’s fair reasoning behind this kind of decision, and it stands to protect those involved in the transaction. Understanding the mechanisms behind getting a presale mortgage can definitely increase your chances of approval… and getting your dream home. 

At its core, a presale condo mortgage is just like a traditional mortgage. What we mean by this is that in both cases, a mortgage will help you purchase a property, provided you can make the required initial down payment which is in most cases of at least 20%. Of course, after this initial payment, you’ll need to embark on a more or less extensive payment plan that enables you to pay off the remaining sum of the property’s total value.

Let’s explain further. What often happens in the case of presale condo mortgages is that the buyer purchases the property at a certain value. Later on, they discover that, when the construction is finally completed, the price has increased significantly. It often happens that housing prices go up over the course of a few years or even a few months. 

This kind of unpredictability can stop you from getting approved for the presale mortgage.

In most cases, by this time, the buyer’s personal and financial situation has changed, making them no longer able to qualify for a traditional mortgage. This typically translates into a conundrum that favours neither the buyer nor the developer.

This is why such a measure was put into place — to shield buyers and sellers from unforeseen circumstances that may arise over time. The more time elapses from the initial purchase until the completion of the property construction, the higher the risk is for the buyer to end up having completely different financial prospects that prohibit them from qualifying for the presale mortgage.

Is Mortgage Financing For Presale Condos Doable? 

Mortgage financing for presale condos is possible if you have the right lender. Not all lenders offer this type of financing. You will need to shop around and find one that offers presale condo financing. You will also need to make sure that the property you are buying is eligible for this type of financing.

Most often, presale condos won’t have a traditional lender — someone who offers a conventional mortgage — lined up to buy the property when it is completed and listed for sale. Therefore, when buying a presale condo, and looking for a mortgage lender, you’ll probably need to get a private mortgage.

Here, at Your Equity, we work with private lenders that can — and will — lend money on both the original property value and on a percentage of the new value. It’s important to note here that the lender will most likely not operate with the whole of the updated property price but only with a percentage of it. You’ll need to consider information like this before moving forward. Not doing so can cost you a large sum of money, and plenty of headaches. 

As you can see, it’s safe to say that getting a presale mortgage for condos is more than doable. All you need is to think a few steps ahead and lay the ground so that it suits you further down the line.

Staying Up To Date Is Key

Before you jump into signing your mortgage application, make sure you’re keeping track of all changes occurring in the real estate market. For instance, one thing to know is that if the Building Constructing Pricing Index rises by more than 4%, the developer has the right to raise the price by over 4%.

Whether you’re a one-time home buyer, a first-time home buyer, or just prospecting the market, staying up to date with new developments in the real estate market is key.

Conclusion

Getting approval for any type of mortgage can be nerve-wracking, so knowing the ins and outs of this industry can make a world of difference. It can set you up for success in getting approved for the property you want while also safeguarding you against messy and unnecessary risks.

Working with a mortgage broker who has access to the right lenders can also make or break the game when trying to get approval for a presale condo mortgage. Fortunately, our team is highly qualified and can support you in your journey as a home buyer and on the path to your dream home.

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