Can't Close on Pre-Construction? Your Options in Ontario

Why pre-construction closings fail

A pre-construction agreement fixes the price years before closing. By the time the building is ready, a lot can change. The lender will lend on the home's appraised value at closing, so if values have fallen, there can be a gap between your price and the mortgage you can get. Interest rates may be higher, your income may have changed, and you must pass the mortgage stress test again at closing.

The stress test uses the higher of 5.25% or your contract rate plus 2 percentage points. On top of the down payment, closing adjustments and land transfer tax add to the cash you need on the day.

• Affordability calculator →
• Closing costs and levies on pre-construction →

A timeline to follow if closing looks difficult

• As soon as the occupancy or closing date is firm: get a fresh mortgage pre-approval and a lawyer's review of the agreement
• Months before closing: estimate the appraisal gap using recent sales of similar units, and total your closing costs
• If there is a gap: talk to a mortgage professional about other lenders and to your lawyer about the builder
• If an assignment is possible: list it early enough to allow for the builder's consent
• Weeks before closing: confirm your funds, your mortgage commitment and your lawyer's instructions

Option 1: find other financing

• Ask a mortgage professional to shop other lenders, including credit unions and lenders with different appraisal and income rules
• Increase the down payment from savings, an FHSA, the RRSP Home Buyers' Plan (if eligible) or a family gift
• Add a co-borrower or guarantor, understanding that they take on real liability
• Short-term or private financing is sometimes used to close; it is expensive and should come with a clear plan to refinance or sell

• Mortgage calculator →

Option 2: talk to the builder early

Builders would usually rather close a sale than chase a default. Some have offered extensions, moves to a smaller or cheaper unit, credits, or help with financing on some projects. Nothing obliges a builder to offer any of these, and any change must be written into an amendment to your agreement. Approach the builder through your lawyer, well before the closing date, with a clear proposal.

Option 3: sell by assignment before closing

If the agreement allows it and the builder consents, you can assign the agreement to a buyer who closes in your place. You get your deposits back (and any profit) from the buyer, or accept less if the market has fallen, which can still cost less than a default. Start early: finding a buyer, the builder's consent and the lawyers' work all take time, and some agreements block assignments close to closing.

Check whether assigning releases you. Many agreements keep the original buyer liable if the assignee fails to close.

• How to sell a pre-construction assignment →
• List your assignment with Summitly →

Option 4: negotiate a release, or close and then lease or sell

Some buyers negotiate a mutual release, where the builder cancels the agreement in exchange for keeping some or all of the deposit. It ends the risk of a larger claim, but it usually costs money and requires the builder's agreement.

If you can close but cannot carry the home alone, leasing it after closing can help with the monthly costs. Check your mortgage terms and, for condos, the declaration and rules. During interim occupancy, before registration, many agreements restrict leasing without the builder's consent. Selling after closing is also possible, but you must close first, and selling quickly can trigger tax.

What happens if you do not close

• Not closing on the date in your agreement is a default, and the builder can terminate the agreement
• The agreement usually lets the builder keep your deposits
• The builder can resell the home and sue you for any shortfall between your price and the resale price, plus its costs
• Tarion's deposit protection does not apply when the buyer is the one who defaults
• A court judgment can affect your credit and your other assets
• Payments for upgrades and extras are usually lost along with the deposits, depending on the agreement
• If you believe the builder breached the agreement or its disclosure obligations, your lawyer may see rights to rescind; do not assume so without advice

If the debt is overwhelming

If a default claim would be more than you can pay, a Licensed Insolvency Trustee can explain formal options such as a consumer proposal. Get that advice before you sign any settlement, so you understand how each choice affects you.

This guide is general information, not legal or tax advice. Rules change and every agreement is different, so have a real estate lawyer review your agreement and speak to an accountant about tax before you sign.

• Tarion and HCRA new home protection →
• Ontario assignment sales →