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Deposit Insurance
You will have to make a deposit on a new construction home-and many builders will require additional partial payments at certain stages of construction.
Many provincial governments can insure new home deposits up to a certain amount, usually $20,000. However, your payments are likely to exceed that amount. To protect your funds, consider purchasing a new home deposit bond from an insurance company (ask your insurance company or broker if they are available in your province).
How does a new home deposit bond work?
First, ask your builder if he accepts new home deposit bonds. For a relatively small price, the bond lets you buy a house that requires a large deposit-without actually having to pay that money right away.
For example, your builder requests a deposit of $100,000:
- You pay a cash deposit of $20,000 (or the maximum amount covered by your province's new home deposit insurance program).
- With your builder's agreement, you then purchase a bond for the remaining $80,000. Your cost for the bond will be 1.5% of the bond value plus a $100 application fee, or $1,300. You'll experience two benefits by purchasing the bond:
- You'll defer until later the higher costs and interest charges incurred when you borrow the $80,000.
- You won't lose your deposits if your builder goes bankrupt before your house is completed.
- While your builder doesn't get the $80,000 right away, he has the assurance that the money will be paid by the insurance company if you fail to close the deal.
Another way you'll protect your investment in a new home is by checking on the builder's work. Learn more about the pre-delivery inspection.
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