Buying a newly built home in Canada involves a different mortgage process than purchasing a resale property. New construction purchases involve deposits paid over time during the build phase, a "draw mortgage" structure where funds release in stages, higher GST or HST obligations, and unique risks around rate holds and closing date uncertainties. Understanding these differences is essential to avoid costly surprises.
Two distinct scenarios fall under "new construction":
You buy from a developer before or during the building phase — typically 2–5 years before occupancy. You pay a series of deposits (often 15–25% of the purchase price) during the construction period, then arrange a mortgage when the unit is ready for possession. The long gap between purchase and closing creates rate risk and qualification risk.
You buy a lot and commission a builder, or purchase a spec home from a builder during or after construction. Financing is typically through a construction or draw mortgage, with funds released in installments as construction milestones are met.
For custom builds, the financing mechanism is a draw mortgage (also called a construction mortgage). The lender commits to a total amount but releases funds in draws — typically 3–5 installments — at construction milestones:
Each draw requires an inspection by the lender's appraiser to confirm construction progress before funds are released. You pay interest only on the amount drawn, not the full committed amount, during construction. Once construction is complete, the draw mortgage converts to a standard mortgage (with full principal + interest payments and a locked-in term).
One of the biggest risks for pre-construction buyers is interest rate uncertainty. When you buy a pre-construction condo with a 3-year build timeline, you cannot lock in a mortgage rate today for a closing that is 3 years away. Standard mortgage rate holds are 90–120 days.
Options for managing rate risk on pre-construction:
New construction homes are subject to GST (5%) federally, or HST in HST provinces (Ontario: 13%, New Brunswick: 15%, Nova Scotia: 15%, Newfoundland: 15%, PEI: 15%). This is applied to the purchase price of the new home and represents a significant additional cost.
The GST/HST New Housing Rebate partially offsets this cost:
In Ontario, a buyer purchasing a $700,000 new build pays $91,000 in HST (13%) but receives a partial rebate — the provincial portion (8% = $56,000) is rebated in full for owner-occupants. The federal portion rebate is capped and partially recoverable. Net HST cost is often the federal portion after rebate: approximately $100–$15,000 on most Ontario new builds.
Pre-construction condo developers typically require staged deposits. A common structure:
These deposits are paid over time and held in trust by the builder's lawyer. Total deposits of 15–25% are common for pre-construction condos. Funds in trust earn interest in some provinces. If the builder cancels the project, deposits are returned (with interest where applicable) under consumer protection legislation in Ontario and BC.
However, the deposit is at risk if the buyer cannot complete the purchase at closing — if rates rise and you can no longer qualify, or your financial situation changes, you may lose your deposit if you cannot close.
A significant 2024 policy change: first-time buyers purchasing newly built homes now qualify for insured mortgages with 30-year amortizations (previously limited to 25 years for insured mortgages). This reduces monthly payments by approximately 8% compared to 25-year amortization, improving cash flow and qualification for buyers in expensive markets.
To qualify: must be a first-time buyer (as defined for CMHC insurance purposes), purchasing a new construction property, with less than 20% down payment. This policy specifically targets new builds to incentivize housing supply — it does not apply to resale properties.
In Ontario, new homes built by registered builders are covered by Tarion (Ontario New Home Warranty). The warranty covers defects in work and materials (1 year), major structural defects (7 years), and deposit protection in builder insolvency. Lenders typically require Tarion enrollment for new construction mortgage approval in Ontario. Equivalent programs exist in other provinces (BC New Home Registry Warranty, Alberta New Home Warranty, etc.).
Many builders offer financing incentives to attract buyers, particularly in slower market conditions:
These incentives are often compelling but require careful evaluation. A builder rate buy-down of 1% for 2 years may be less valuable than a lower purchase price. Get independent mortgage advice before accepting builder financing packages.
New construction closings involve unique cost categories beyond standard resale closings:
Pre-construction contracts in Ontario often cap certain adjustments — review your purchase agreement carefully with a real estate lawyer before signing. Many buyers are surprised by adjustment amounts at closing that they did not budget for.
Unique to Ontario condos: when your unit is ready for occupancy but title has not yet transferred (the building is not fully registered), you enter an "interim occupancy" period. During this period, you pay an occupancy fee to the builder (like rent) that includes interest on the unpaid purchase price, estimated condo fees, and property taxes. This period can last months to years. Your mortgage does not begin until title transfers. This can significantly affect your cash flow planning.
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