The down payment required on a new construction home is a minimum of 20% of the purchase price, including the cost of the upgrades. The down payment on a new build can be paid in installments, over a set period of time.
While there are many resale homes on the market, some buyers prefer buying a new build home due to its many advantages. Most significantly, new build homes are brand new and built to your preferences.
The homebuilder calculates the prices on new build homes based on a set of fixed and variable costs in construction. A new construction home will have costs based on material and labor costs, land costs, development costs, and duties paid to the cities for permitting.
Across a single subdivision, the prices will vary as the builder releases model homes in phases. For example, the first phase that is released will have the lowest prices among the other phases to come. Additionally, the upgrades and lot premiums will add to the base price you are quoted by the builder.
If you choose to pay for the home upgrades out of pocket, there is no reason to include this as part of their down payment deposit. You would simply write a cheque to the builder for the cost of the upgrades.
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Down Payment Structure for New Build
There are homebuilders who offer a range of down payment options to their customers, which range from twenty to twenty-five percent. The most common down payment structure offered by most builders is the following:
- $5000 On Signing
- Balance Remaining on 5% Down in 30 days
- 5% Down in 60 days
- 5% Down in 90/120 days
- 5% Down in 120/180 days
The payment schedule for a new build will vary between different builders, and some may offer a longer period to pay off the down payment. However, the total down payment percentage will be 20% or more.
When a builder offers a payment schedule, it can make things easier for you. While you’ll still need to have the money ready, the new build payment schedule can make it easier to pool money together.
With most builders, your initial deposit can be paid by a certified cheque, bank draft, or credit card.
Regardless of the payment structure, your down payment is protected in provinces such as Ontario. In Ontario, the down payment you provide your builder is protected to a certain limit. With most new builds in the province over $600,000 – your down payment is protected up to ten percent of the purchase price or $100,000, whichever is greater.
However, if your purchase price is below $600,000, you are protected up to $60,000. The protection will extend to cover any deposits you pay towards home upgrades as well. In order to qualify for the protection, you must sign the purchase agreement and the builder must be registered with the local new home warranty protection service.
If you are building a custom home, your deposit structure will vary and may look like this:
- Deposit at Contract Signing
- Deposit at Permit Stage
- Deposit at Foundation Backfill
- Deposit at Roofing Stage
- Balance on Closing Date
Missed Deposit on New Build
If you miss a deposit payment on your new construction with your builder, they will reach out to you to collect the missed deposit. However, if you are not able to make this payment – the builder can take further action. Your deposit schedule will be included in your signed purchase agreement, as this is a binding contract – there can be legal consequences for not making the remaining deposits.
As there is an inconvenience to the builder when your deposit cheque does not clear, the builder can charge you an inconvenience fee. They may refer to this as the NSF fee or administration fee, which can be up to $100 with some builders.
If you’re thinking about backing out of a new construction home contract and want to miss your deposits, we recommend speaking with your builder and lawyer. Depending on how flexible the builder is, you may be able to walk away early in the process.
Some Agreement of Purchase and Sale documents will explicitly mention the deal is firm, referring to the fact that the contract cannot be voided. In such cases, the expert advice of a real estate lawyer is required.
Do You Pay PMI On New Construction?
No, you do not pay PMI on new construction homes because your builder will require you to pay a 20% down payment on your home. PMI (Private Mortgage Insurance) is required by lenders if your down payment is less than twenty percent of the purchase price.
Whether you are building a home from the ground up or purchasing a new build home – there will be no requirement to get private mortgage insurance, as your down payment would be more than 20%.
PMI is an added cost that can be avoided for some homebuyers. If a soon-to-be homeowner is considering FHA loans in Canada, they may be looking at paying mortgage default insurance. This is a premium that will be added to the mortgage balance.
