# Financing a Pre-Construction Condo in Canada — What to Know Between Deposit and Closing

> How pre-construction condo mortgages actually work: deposit structures, the appraisal gap risk, interim occupancy, and why rate holds rarely cover the full timeline.

Category: Purchase
Last verified: 2026-04-20
Source: https://ratellow.com/scenarios/pre-construction-condo-financing-canada

## Who this is for
Buyers who've signed a pre-construction condo contract, typically with a 15-25% deposit over multiple instalments, facing a 2-4 year build window before closing.

## Summary
The mortgage on a pre-construction condo isn't issued when you sign — it's issued months before final closing, based on the appraised value at that future point. Two big risks dominate: the appraisal coming in below your purchase price (appraisal gap) and rate holds not covering the full build timeline. A structured pre-construction mortgage approval, obtained 6-9 months before final closing, is the primary mitigation.

## Worked example
Assume a contract signed 2024 for a $700k pre-con closing Q4 2026. Buyer paid $140k in deposits (20% across 4 instalments). Closing appraisal comes in at $640k — a $60k appraisal gap. Buyer must cover the gap in cash or negotiate with the developer.

- Typical deposit structure: 15-25% across 4-6 instalments
- Rate-hold window: Max 120 days, cannot cover full build
- Appraisal gap scenarios: 5-20% below purchase not uncommon in soft markets
- Interim occupancy fees: Monthly payment to developer before final close, not principal-building

## Framework
### The mortgage timeline
You can get a pre-construction mortgage pre-approval at contract signing, but it's largely informational — no money is lent and the rate isn't held. The actual mortgage application happens 90-120 days before final closing. That's when the appraisal is ordered, your income and credit are re-verified (both must still qualify), and the rate is locked. Between contract and final close, everything about you and the market can change — this is why some buyers can't close.

### Interim occupancy
In many provinces (Ontario especially), buyers occupy the unit for months before final closing — 'interim occupancy.' During this period you pay an 'occupancy fee' to the developer that includes an interest component, maintenance, and estimated property taxes. None of it builds equity. It ends when the condo corporation is registered and your mortgage fundingplus final closing happens.

## Key considerations
- Your qualifying income, credit, and employment all need to be re-verified at final closing. Job loss or reduced income in the meantime can kill the deal.
- New B-20 rules (or changes to insured-mortgage caps) between contract and close apply to you — the rules at close are the rules that govern.
- HST/GST on new construction can reach 5-13% depending on province — rebates exist for primary residence but not investment.
- If you're buying pre-con as an investment and intend to rent, insured financing usually isn't available — you'll need 20%+ down and a rental-property-qualified lender.

## Common mistakes
- Assuming the developer's in-house mortgage broker is the cheapest option. They're often not — they're the path of least resistance.
- Not having reserve cash for an appraisal gap. In weaker markets this has been 5-15% of purchase price.
- Forgetting that delays to closing (common in pre-con) can push you into a new rate environment — if rates rise meaningfully, affordability can change.

## Action steps
1. At contract signing, get a pre-con pre-approval even if informational. It flags any obvious qualification gaps early.
2. At 6-9 months before final closing, re-engage a broker for a formal approval and rate hold.
3. Hold reserve cash of at least 10% of purchase price beyond your deposit, to cover potential appraisal gap.

## Sources
- Buying a New Home — https://www.cmhc-schl.gc.ca/consumers/home-buying/buying-guides
- Ontario New-Home Warranty — https://www.tarion.com/