When should you get a mortgage for a pre-build home?

Finding a home that meets all your needs is a milestone for all aspiring homeowners. Sometimes, a model home or condo is enough to sell you on what could one day be your own four walls. But when is the right time to get a mortgage on a home that’s not yet built?

Obtaining a mortgage for an existing property begins with one of two avenues for the buyer: a direct lender or a broker. However, buying a pre-build home opens another door — getting a mortgage directly from your builder. Here is how to get the timing just right when securing a mortgage for your future home.

When and how to take out a mortgage on a pre-build

Taking out a mortgage on your home directly with your builder can be a great way to go. “Many people get their mortgage set up when they walk into the pre-sale event where they’ve got the model homes set up,” says Leah Zlatkin, LowestRates.ca expert and mortgage broker.

Perhaps the main benefit of doing so is the exclusive access you may have to custom rates. “In most cases, the builder will have a lender on file that will give you preferential rates and hold the value of the home,” says Zlatkin.

However, it’s still possible to secure financing with your builder’s lender and reconvene with a broker as you approach your closing date. “Three months before occupancy is usually when a broker would come in,” says Zlatkin, “then we can see if there’s a better interest rate on the market that’s going to suit your needs.”

Do supply chain delays impact your mortgage for a pre-build home?

Building delays are more common than you’d think. Global supply chain shortages continue to prolong Canadian home completions by up to 10 weeks, which directly affects closing dates. This reality highlights the advantage an inside lender can offer. “They’re aware of the constraints around when the property is going to be available and when you’ll get title,” says Zlatkin.

Even if construction is delayed due to a low supply of building materials and labour availability, for example, your builder’s mortgage lender provides a simple approval process. “You’re not continuously getting preapproved, you’re maintaining the same approval that you had because it’s subject to that specific property, with that specific lender, with that specific builder,” says Zlatkin.

If you do choose to go with an outside lender, you may run in to a repetitive approval process. It’s possible your move-in date could get delayed past the point of your mortgage approval being valid. “At that point it’s very possible we would have to do it all over again,” says Zlatkin, which could result in the loss of your original interest rate.

If you do have to get reapproved for your mortgage with your original lender, fear not. Although you may lose your initial rate, your credit score shouldn’t be significantly impacted. “It’s just kind of a pain for the person buying the property to have to keep getting approved,” says Zlatkin. Your credit score may only be impacted if you seek preapproval from three or more brokers. “If you ask them all to pre-approve you, then you might have a problem,” Zlatkin says. And if you’ve paid for upgrades to your home, be sure to provide updated costs and documentation for your next approval.

How long is a pre-build mortgage approval valid for?

In general, a broker can hold a mortgage rate for approximately 120 days. However, “there are a few lenders that will hold rates for [as long as] 180 days, and some that will hold for [as little as] 90 days,” says Zlatkin. Regardless of if your preapproval falls within a 90-, 120-, or 180-day window, there is always a chance a building delay will occur with a pre-build home.

For example, if you’ve made a deposit on a pre-built condo, and the builder fails to sell enough units by your occupancy date, your ownership can be delayed or completely cancelled. However, delayed occupancy warranty is required in Ontario as compensation and is provided at the time of purchase. In this case, you may need to contact your lender for an updated mortgage approval if your previous one has expired. Unfortunately, if the development does fall through, your approval is no longer valid.

Another benefit of getting a mortgage via the builder’s mortgage representatives is a tighter hold on your approval. “They’ll often be able to hold approvals for a much longer time frame because they have a special agreement set up with that particular property,” says Zlatkin. That way, the chances of you having to get reapproved decrease substantially.

Finding an affordable mortgage rate for a pre-build

Whether you choose to use your builder’s mortgage lender, a broker, or bank, you want to be sure you’re getting the best rate for your term.

Securing a mortgage through your builder does have its advantages, but you should always compare the best mortgage rates in Canada before choosing any lender. Shopping around is the only sure way to know you’re getting the best mortgage rate available for your brand-new home.