When you are buying a new construction condo, you need to make a down payment, just as you would if you were purchasing any other type of property. Down payments are a little more complex for new construction condos than they are for other types of housing, however. There is an initial deposit, followed by deposits at project checkpoints. Let’s explain how it works.
The Initial Deposit
Let’s say you have found a project you want to invest in. One of the first steps will be to sign a non-binding reservation agreement. You will then make your first payment. This first deposit to buy a new construction condo usually ranges between 5% and 10%.
It is still possible to back out at this stage. But once you sign the contract (see below), you will be locked in.
Milestone Deposits
Condo projects can take years to complete, which is why there are milestones along the way. During these milestones, you will need to make additional deposits.
- Contract: You will need to sign a contract once the developer is ready to get started building the new condo. This milestone usually takes place within six months of making your reservation and initial deposit, sometimes less. When you sign the contract, you will need to make the next deposit. It is usually about 10%.
- Payments at intervals: As construction on the condo takes place, you will be asked to make deposits at intervals. The exact amounts and timeframes can vary. But to give you an example, you might be asked to pay a 5% deposit at the 90-day mark, the 180-day mark, and the 365-day mark. Combined, you can think of all of these as adding up to the “full deposit.” It is just easier for a lot of people to pay it across this extended timeline than all at once upfront.
- Pre-occupancy payment: In some cases, you may need to pay another deposit right before occupants move into the completed condo. When this fee is collected, it is used to help fund some of the last stages of construction.
- Closing day balance: The final payment is due when you close. You will probably take out a mortgage to cover this amount. It will simply be everything you have not paid upfront in fees.
How much all the deposits add up to can vary. But it is often something like four deposits of 5% each, adding up to a total of 20%. So, you will not typically be paying an unusually high amount.
A quick clarification:
- Technically, a down payment is an amount you pay upfront to the lender when you buy a condo.
- A deposit, however, is an amount you pay to the builder.
Take note that the builder deposits usually count toward your down payment. So you do not have to pay the deposits and a separate down payment. Your deposits are your down payment.
That is why we are referring somewhat interchangeably to down payments and deposits in this guide.
If the lender wants 20% upfront, and you paid 20% in deposits, the lender probably will count the deposits toward the down payment requirement, and you won’t owe further down payment.
But if the lender wants 20%, and you paid only 15% in deposits, you probably will have to furnish another 5% in down payment funds to the lender.
Why Do Deposit Amounts Vary?
Why are some deposit amounts 5%, and others 10%? Here are some of the factors that can drive variations in amounts:
- Geographical location
- Market conditions
- The price for the property
- The policies of the developer
- Promotions
In more competitive, high-demand markets, deposit requirements can be significantly higher. For example, in cities like Miami and New York, developers may require 30% to 40% down for certain projects, especially luxury condo developments. This reflects increased risk, higher property values, and stronger demand in these markets.
What to Ask About the New Construction Condo Down Payment
To make sure you can budget correctly for your investment in a new construction condo, here are some questions you should ask before you move forward.
- What is the total down payment amount?
- How many deposits are there? When is each of them due? What amounts are they?
By knowing the exact schedule of deposits and amounts, you will be able to plan ahead to set aside the amount of money you will need for each. You do not want to get caught off guard at any step along the way.
Frequently Asked Questions About New Construction Condo Down Payments
- Q: How do down payments work on new builds?
- A: Down payments for new builds work in installments. You make an initial deposit when you sign the contract, them you make further deposits at checkpoints toward project completion.
- Q; What is a good down payment for a condo?
- A: A good down payment amount for a condo is around 20%. Sometimes you might see down payment requirements a little higher, or a little lower.
- Q: How much should you put down on a $300,000 condo?
- A: Down payments typically range around 20%. So, in this example, if a $300,000 condo has a 20% down payment requirement, that would come out to $60,000. Let’s say that is divided into 4 separate deposits. Each deposit might be $15,000.
- Q: Are condos hard to finance?
- A: There can be some challenges involved with financing condos, especially those that are not yet constructed. There is more risk involved in financing a property under construction. Plus, compared to single family homes, condos have some added complexity. So, you may encounter some higher rates and down payment requirements sometimes if you are shopping for a mortgage for a pre-construction condo. Nevertheless, you can find loans with competitive rates and affordable down payment requirements. A mortgage broker can assist.
Buy a New Construction Condo in Florida
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or anywhere in FL. If you are ready to begin, please give us a call at (786) 220-1100 to
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