When purchasing a resale property, the closing date is a straightforward concept. It’s simply the date that the ownership is transferred from the seller to the buyer. Where it becomes more complex is when purchasing a pre-construction condo, as there is not just one closing date, but two. The first is your occupancy closing. The second is your final closing date.
Occupancy Closing Date
This is the date you get the keys and take possession of the unit, however ownership is not yet transferred to you. The development is not registered at this time, which means there is no title to transfer, and nothing to register the mortgage against. While you have taken possession of your new purchase, you still don’t officially own it. As you don’t yet own it, you’re not able to get a mortgage. At least, not yet.
Final Closing Date
This is the date that you take ownership, and is the date that your mortgage takes effect. Final closing date can be anywhere from a few weeks to over a year after occupancy. While it can happen this quickly, or drag out for this long, these cases are rare. In most situations, final closing occurs between five and nine months after occupancy.
What Happens Between Occupancy and Final Closing Date?
As you won’t have a mortgage in place until final closing, you’re obviously not going to have any mortgage payments to make. While this may sound appealing, it doesn’t mean that you’re not paying anything to occupy the unit. The builder will charge you an occupancy fee, which is an estimate of your future mortgage payment, maintenance fee, and property taxes. In a sense, you’re renting the unit before you take ownership. You would continue to pay this ‘rent’ until final closing date, at which point your mortgage begins. Now you officially own the property.
Your mortgage payment schedule would then begin. Property taxes are then collected by the municipality (assuming the property has been assessed by that time), and maintenance fees are paid to the condo management corporation.
Notification Of Final Closing Date
Builders may try to give you an estimate of final closing date, but in most cases, they are just guessing. Pinning them down for an exact date is close to impossible as they don’t know themselves. I’ve had clients where the builder has told them to expect final closing date about three weeks after occupancy, where in reality, it ended up being longer than nine months. While it’s always a good idea to ask the builder about when final closing can be expected, rarely are they accurate in their estimate, if they give you an estimate at all.
Mortgage Approval For Pre-Construction Condos
Most mortgage lenders will only hold a rate or issue an approval up to 120 days before closing date. This is not helpful with new build condos in most cases. Sometimes even occupancy closing can be years away from the time you sign your offer to purchase, let alone, final closing.
In this situation it’s recommended reaching out to the bank that the builder has a relationship with. They should be able to issue you a mortgage commitment and lock in a rate. While the rate won’t seem attractive at the time, it still gives you some protection if mortgage rates have increased by the time your final closing date rolls around. When final closing date is announced, you’re not obligated to go with this offer. You’re only using it as a safety net. If market rates are lower than the original rate, the bank would be able to drop it for you. You can still shop around as it’s likely that even better mortgage rates exist. It doesn’t matter if you’ve signed the commitment or not, you’re still free to switch to a better offer should one be available.
If you are looking to purchase a home over the next few months, contact us today at 877-296-2696 or email us at info@homemortgageadvice.ca.