The best part about pre-sales, especially for first time home buyers, is it allows you to reserve a unit for the cost of a deposit and have a significant amount of time to get everything in order. You can save money while renting or living at home, arrange a mortgage that best suits your needs, take advantage of higher income if your employer has scheduled raises, cash in on property appreciation without making a mortgage payment, a lot of good things.
The main drawback however, is of course, time itself. Anyone who has had a signed a pre-sale contract prior to January 1st, 2018, with a closing date sometime in the next year or two, will know what I am referring to.
Back in the fall of 2016 we had our first stress test introduced which lead to only 20% down payment applicants being able to qualify at a 5-year fixed contract rate. With people qualifying at a 5-year fixed rate, they were able to potentially borrow more money, leading to a lot of people saving up or getting gifted down payments for their pre-sale condos.
Well, fast forward from Fall of 2016 to Winter of 2017, and yet another stress test was introduced, this time, removing the ability for anyone to qualify at their 5-year contract term- regardless of down payment size. For several months, it was not made clear by the government how pre-sale contracts were going to be treated when they were signed before January 1st 2018 with a closing date after January 1st, 2018.
The good news is, lenders have the ability to grandfather in those contracts signed prior to the new stress test, which was enforced January 1st, 2018.
This was important for those who just barely qualified for their mortgage on a pre-sale with 20% down and a qualifying rate equal to their contract rate. The reason why is because if someone was qualified at 3.20% and was just barely approved but now had to qualify at an interest rate of 5.14% (current BoC Benchmark), they would have to sell their contract to buy because they no longer could afford to close.
It is relief for anyone, that pre-sale properties are being grandfathered in for these new changes and will allow those who have paid their deposit to hold on to their contract to purchase. Pre-sales are a way of the future and it is important for the experience to be a pleasant one! If you have any questions, contact a Dominion Lending Centres Mortgage Professional near you.
