Buying a pre-sale property is very different from buying a resale home. Pre-sale purchases typically take 2–4 years from contract to completion, during which market conditions, interest rates, and your personal financial situation may all change. This article covers mortgage considerations and strategies for pre-sale purchases.
Key Differences: Pre-Sale vs Resale
| Item | Resale | Pre-Sale |
|---|---|---|
| Mortgage application timing | Immediately after offer accepted | 3–6 months before completion |
| Appraisal timing | Before subject removal | Before completion (after built) |
| Rate hold | 90–120 days | Usually cannot lock multi-year rates in advance |
| Appraisal risk | Lower | Higher (market may change) |
| Down payment structure | One-time payment | Deposit paid in instalments; balance at completion |
Pre-Sale Mortgage Timeline
16–9 months before completion
Start talking to your mortgage broker and assess the likely mortgage amount. Confirm whether your income, credit, and down payment situation has changed.
23–6 months before completion
Submit a formal mortgage application. Prepare income documents, bank statements, and proof of down payment source. If you need to sell an existing property, start planning.
31–3 months before completion
The lender arranges a property appraisal. The appraisal result directly affects the mortgage amount. Confirm strata documents, builder information, and other documents.
42–4 weeks before completion
Mortgage formally approved, loan documents signed. Your lawyer or notary arranges completion. Prepare the remaining down payment and closing costs.
Appraisal Risk and Mortgage Adjustment
One of the biggest pre-sale mortgage risks is the appraisal. The price at signing reflects the market years ago; the market value at completion may be higher or lower.
- Appraisal above contract price: favourable to the borrower; mortgage may be higher
- Appraisal equal to contract price: mortgage based on contract price
- Appraisal below contract price: mortgage based on appraised value; difference paid by borrower
For example, contract price $800,000, 20% down ($160,000), mortgage $640,000. If at completion the appraisal is $750,000, the lender calculates 80% of $750,000 = $600,000. The $40,000 difference must be paid by the borrower.
Funds to Prepare Before Completion
- Remaining down payment: the balance after deposits paid
- Appraisal shortfall: if appraisal is below contract price
- BC Property Transfer Tax: calculated on the contract price
- GST/HST: new homes usually incur 5% GST (rebates may apply in some cases)
- Legal or notary fees: typically $1,000–$2,000
- Property tax adjustment: prorated to the completion date
- Strata fee and reserve fund adjustment: if applicable
- Moving costs: if applicable
Strategies in a Down Market
1. Prepare additional funds in advance
If you're concerned the appraisal may come in below contract price, reserve additional funds to avoid a shortfall at completion.
2. Consider assigning the contract
Some pre-sale contracts allow assignment. If the market drops significantly, you may consider assigning the contract — but confirm whether the developer allows it, and understand the fees and tax implications.
3. Discuss alternatives with your mortgage broker
If traditional lenders appraise lower, B-lenders or private lenders may be options, though at higher rates. Weigh short-term cost against long-term plans.
4. Increase your down payment
If the appraisal shortfall is significant, increasing your down payment reduces the mortgage amount, but requires advance preparation.
Frequently Asked Questions
Q: Can I lock a rate in advance for a pre-sale purchase?
Some lenders offer pre-sale rate holds, usually for a short period (e.g. 90–120 days), and require starting within a certain time before completion. Policies vary by lender.
Q: Does the pre-sale deposit count as down payment?
Yes. Deposits are part of the down payment. The remaining balance is paid at completion. Deposit source must be traceable and documented.
Q: What if I can't get a mortgage at completion?
If a mortgage cannot be obtained, you may face default risk, including losing deposits and potential claims by the developer. Assess your financial situation and income stability carefully before signing.
Q: How is GST/HST handled on a pre-sale?
New homes usually incur 5% GST. In some cases, if the property is a primary residence, a GST rebate may apply. Consult your accountant or lawyer for specific rules.
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