Pre-construction deposits in Ontario are paid in installments over months, not as a lump sum. Here is how typical deposit schedules work and what protections are in place.
How Pre-Construction Deposits Work
One of the key differences between buying pre-construction and purchasing a resale home is the deposit structure. Rather than providing a single lump-sum down payment at closing, pre-construction buyers pay their deposit in installments over several months during the construction period. This extended timeline is one of the features that makes pre-construction accessible to a wider range of buyers.
Typical Deposit Schedules in Ontario
While every builder sets their own deposit structure, there are common patterns across the Ontario market. A typical deposit schedule for a freehold home might look like this:
- On signing: $5,000 to $10,000 with the Agreement of Purchase and Sale
- 30 days after signing: An additional payment bringing the total to 5 percent of the purchase price
- 90 days after signing: Another installment bringing the total to 10 percent
- 180 days after signing: A further payment bringing the total to 15 percent
- 270 to 365 days after signing: A final installment bringing the total to 20 percent
Some builders offer more flexible structures, particularly for first-time buyers. Others may require a larger initial payment or compress the schedule into fewer, larger installments. The specifics are always outlined in the Agreement of Purchase and Sale.
What Counts Toward Your Down Payment
Your pre-construction deposit forms part of your overall down payment. At closing, the total amount you have deposited is applied toward the purchase price, and the balance is covered by your mortgage and any additional funds you bring to closing.
For example, if you purchase a home for $900,000 and have deposited $180,000 (20 percent) over the deposit schedule, that $180,000 is credited at closing. If your mortgage covers $720,000, the deposit covers the remainder.
Where Your Deposits Are Held
In Ontario, pre-construction deposits are held in trust by the builder's lawyer until certain conditions are met. This is a legal requirement, not an optional practice. The funds are not available to the builder for construction costs or other purposes while held in trust.
Deposits are released to the builder in stages, typically after the cooling-off period has expired and specific construction milestones are reached. The terms governing when deposits are released are set out in the Agreement of Purchase and Sale.
Tarion Deposit Protection
All pre-construction home purchases in Ontario are protected by the Tarion Warranty Corporation's deposit protection program. This coverage applies if the builder is unable to complete the project or fails to return your deposit under the terms of the agreement.
The current deposit protection limits are:
- Freehold homes (detached, semi-detached, townhomes): Up to $100,000
- Condominium units: Up to $100,000
This protection is automatic and does not require any action on the part of the buyer. However, it is important to understand that the coverage has limits. If your total deposit exceeds the Tarion protection threshold, the amount above the limit is not protected under this program.
The Cooling-Off Period
Ontario law provides a mandatory cooling-off period for pre-construction purchases. For freehold homes, this period is 10 calendar days from the date the Agreement of Purchase and Sale is signed. During this window, the buyer can cancel the agreement for any reason and receive a full refund of their deposit.
This cooling-off period exists to give buyers time to:
- Have the agreement reviewed by a real estate lawyer
- Confirm their financing arrangements
- Reconsider the purchase without financial penalty
It is strongly recommended that every pre-construction buyer use this period to have their agreement reviewed by a lawyer who is experienced in new-home transactions.
What Happens if You Cannot Close
If a buyer is unable to complete the purchase at closing, the consequences depend on the terms of the Agreement of Purchase and Sale. In most cases, the builder may retain the deposit as liquidated damages. This is a significant financial risk, as deposits of 15 to 20 percent on GTA home purchases can represent a substantial sum.
Circumstances that may affect your ability to close include:
- Changes in mortgage qualification criteria or interest rates
- Changes in personal financial circumstances (job loss, divorce, etc.)
- Inability to sell a current home that was expected to fund the purchase
To mitigate these risks, work with a mortgage broker early in the process to understand your qualification position and build financial flexibility into your planning.
Tips for Managing Your Deposit Payments
Planning ahead is essential when committing to a pre-construction deposit schedule. Consider the following:
- Map out every payment date and set calendar reminders well in advance
- Keep deposit funds accessible in a savings account or short-term investment that can be liquidated quickly
- Do not count on investment returns to fund later installments; use conservative projections
- Review your agreement carefully for any clauses that allow the builder to adjust the deposit schedule
- Confirm payment methods accepted by the builder (certified cheque, bank draft, wire transfer)
Understanding your deposit obligations before signing is one of the most important steps in any pre-construction purchase. A clear financial plan that accounts for every installment will help you move through the process with confidence.
Have Questions About Pre-Construction?
Matthew Caporiccio can help you understand pricing, deposit structures, and availability at The Valleys of Thornhill and other pre-construction projects across the GTA.
