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Financing new construction homes in Edmonton is one of the most critical aspects to navigate. With Edmonton’s growing real estate market and the increasing popularity of new builds, understanding your financial options and the unique considerations for new construction financing can make the process smoother and more manageable.
Why Choose a New Construction Home in Edmonton?
Before diving into financing, it’s essential to understand why Edmonton’s new construction market is so appealing. The city offers a blend of affordability, modern designs, energy-efficient homes, and customizable options. With new communities popping up in areas like Windermere, Keswick, and Chappelle Gardens, buyers have a wide range of choices tailored to their needs. Moreover, Edmonton’s thriving economy and family-friendly neighborhoods make it a hotspot for those seeking long-term investments.
Understanding the Basics of Financing New Construction Homes
Financing new construction homes differs from purchasing a resale property. With a new build, you’re not just buying a home—you’re often funding its construction. Here are some key components:
1. Builder Deposits
When purchasing a new construction home, most builders in Edmonton require a deposit. This upfront payment secures your lot and starts the building process. Typical deposits range from 5% to 10% of the home’s purchase price.
2. Construction Mortgages (Draw Mortgage)
For homes built from the ground up, a construction mortgage is common. This type of loan provides funds in stages as the home progresses. Key phases include:
- Initial Deposit: Covers the lot and early construction.
- Draws: Issued at various milestones, such as foundation, framing, and finishing.
- Completion Payment: The final installment paid upon project completion.
3. Completion Mortgages
If you’re buying a newly built home that’s move-in ready or nearing completion, you’ll likely need a completion mortgage. This functions like a traditional mortgage, where you make monthly payments after taking possession.
Steps to Financing a New Construction Home
1. Get Pre-Approved
Before meeting builders or selecting a lot, get pre-approved for a mortgage. Pre-approval gives you:
- A clear understanding of your budget.
- Confidence to negotiate with builders.
- Proof of financing, which many builders require.
2. Work with a Mortgage Specialist
Specialists experienced in new construction financing can guide you through the unique requirements. They’ll help you choose between fixed-rate, variable-rate, or hybrid options and explain terms like amortization periods and interest-only payments during construction.
3. Understand Additional Costs
New builds often come with additional expenses beyond the base price. These can include:
- Upgrades: Customizations or premium finishes.
- GST: New construction homes are subject to the Goods and Services Tax (GST) in Canada, though some buyers may qualify for rebates.
- Landscaping: Often not included in the initial cost and deposits are generally due.
- Home Warranty Fees: Covers structural and system issues.
4. Secure Financing for Deposits
Deposits are required upfront, and they are usually non-refundable. Some buyers use personal savings, while others secure a line of credit or bridge loan.
Government Programs and Incentives
Edmonton buyers can take advantage of several government programs to make financing easier:
Eligible buyers may receive a rebate on a portion of the GST for new construction homes priced under $450,000.
2. RRSP Home Buyers’ Plan (HBP)
With the HBP, you can withdraw up to $60,000 from your Registered Retirement Savings Plan (RRSP) tax-free to finance your down payment.
3. First Home Savings Account (FHSA)
A first home savings account (FHSA) is a registered plan which allows you, if you are a first-time home buyer, to save to buy or build a qualifying first home tax-free (up to $8000), with a lifetime limit of $40,000.
Navigating Edmonton’s New Home Market
1. Choose a Trusted Builder
Financing a new home starts with selecting a reputable builder. Edmonton is home to renowned builders like Jayman BUILT, Landmark Homes, and Coventry Homes. Research their track records, warranty programs, and customer reviews to ensure your investment is secure.
2. Customize Within Budget
One of the most appealing aspects of new construction is customization. However, upgrades can quickly escalate costs. Set a budget for upgrades and stick to it to avoid financing issues later.
3. Plan for Delays
Construction timelines can be unpredictable due to weather, supply chain issues, or labor shortages. Ensure your financing terms allow flexibility for delays.
When building a new home, pre-possession insurance offers critical protection against potential builder defaults, ensuring your investment is secure at every stage of construction. This coverage is tailored to single-family and multi-family homes, combining two essential components: Deposit Protection Insurance and Home Completion Insurance. Confirm with your homebuilder the amount of coverage you have specific to your purchase agreement.
Protecting Your Investment
1. Home Warranty Coverage
All new builds in Alberta are protected under the New Home Buyer Protection Act, which includes:
- One year for materials and labor.
- Two years for delivery and distribution systems.
- Five years for building envelope protection.
- Ten years for major structural components.
2. Insurance
Once construction is complete, you’ll need homeowner’s insurance before taking possession. This coverage protects against fire, theft, and liability.
3. Budget for Closing Costs
Closing costs can include legal fees, land transfer taxes, and title insurance. These are often overlooked but can range from 1.5% to 4% of the home’s price.
Tips for Successful Financing
1. Maintain a Strong Credit Score
A high credit score can secure better mortgage rates and terms. Avoid taking on additional debt or making significant purchases during the construction period.
2. Lock in Your Interest Rate
Many lenders offer rate locks for new construction financing, ensuring your interest rate remains stable even if market rates rise during the building process.
3. Stay in Communication with Your Lender
Keep your lender updated on construction progress and any changes to the purchase agreement. This ensures your financing aligns with the project timeline.
The Future of Edmonton’s New Home Market
As Edmonton continues to grow, new communities are becoming hubs for innovation, sustainability, and lifestyle convenience. Many builders now focus on energy-efficient designs, smart home technology, and eco-friendly materials. Financing options are also evolving, with more lenders offering tailored solutions for new construction buyers.
Financing new construction homes in Edmonton requires careful planning, research, and collaboration with experienced professionals. By understanding the unique aspects of new build financing, taking advantage of government incentives, and working with trusted builders and lenders, you can make your dream home a reality.
Have more questions about financing new construction homes? Contact Chris Reid Edmonton REALTOR®
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