New Home Deposit Bond

Protecting Your Investment In a New Home

Congratulations on your decision to purchase a new home, townhome or condominium. A new home purchase is likely to be one of the largest investments of your lifetime. Therefore, we encourage you to carefully research all aspects of your purchase and to seek professional advice prior to committing yourself. In order to receive the benefits of the Equity Edge New Home Deposit Bond, you must purchase a new home from a builder who is prepared to accept this bond versus all-cash deposits.

The Need For New Home Deposit Bonds

–Large cash deposits

Whether this is your first home, or you are selling an existing home, you will need to have sufficient cash to satisfy the deposit requirements of the builder. This deposit often exceeds the amount of down payment a purchaser would normally be required to put up to secure the purchase of an existing re-sale home. To raise this cash amount, most purchasers use three sources to provide the cash deposit:

• cash in the form of savings or investments,
• cash from the use of funds withdrawn under provisions of your RRSP, and/or
• cash from the equity proceeds from the sale of your existing home.

What is Equity Edge™?

Equity Edge is the latest innovative product from Travelers Guarantee Company of Canada, which addresses both consumer and builder needs when it comes to purchasing a new home. When buying a new home, substantial deposits are typically required by the builder. The Equity Edge New Home Deposit Bond is a surety bond that allows the purchaser to defer a portion of this deposit until the closing date of the sale. Also, additional Equity Edge protection may be used in the purchase of upgrades from your builder to add value to your new home.

Benefits to the Purchaser

• eliminates the necessity to cash in interest-generating investments, or apply for expensive equity loans in order to make those high new home deposits,
• minimizes* exposure and potential deposit loss should the builder fail to deliver the home (*provided the cash deposit does not exceed the maximum deposit coverage provided by the Warranty Program),
• may allow the use of extra cash to purchase upgrades from the builder.

Benefits to the Builder

• makes the buying decision for new homes easier – and should result in more new home sales,
• provides equal security from the purchaser guaranteeing their obligations.

Equity Edge in Ontario

How The Bond Works - Examples
Purchasers are required to pay a minimum amount of the deposit from their own resources, and there may be maximum limits to the amount of deposit available through the Equity Edge program. Ask your builder representative for details.

Here are a couple of examples that show how the Equity Edge New Home Deposit Bond can help you purchase your new home:
SALE PRICE OF NEW HOME: $250,000

BOND RATES for Freehold and Condominium Units Where -
- Final Closing date is within 15 months of Bond Issuance, the rate for a New Home Deposit Bond is 1.5% of the bond amount (subject to a minimum premium of $250), plus a one-time $100 application fee for approved applications.

–Final Closing date is beyond 15 months of date of Bond Issuance,
the rate for a New Home Deposit Bond is 2.5% of bond amount (subject to a minimum premium of $350), plus a one-time $100 application fee for approved applications.

An Equity Edge™ New Home Upgrades Bond is available in conjunction with the New Home Deposit Bond, enabling the purchaser to take advantage of any new home upgrades or options from the builder, after the Offer of Purchase and Sale is accepted.

Note: Approval for an Equity Edge™ New Home Deposit Bond is subject to approval of your application by Travelers Guarantee.

In Ontario, the Equity Edge products are available only through those builders who have been approved by Travelers Guarantee and who are members of the Canadian, Ontario and/or Greater Toronto Home Builders Association.

The New Condominium Act and Equity Edge™
Deposits form an extremely important component to the financing of project, therefore full deferral of the balance of deposit monies until closing may not be desirable. For condominium projects, the following example illustrates how the Equity Edge New Home Deposit Bond could be used by condominium developers to address both theirs and their customers' needs by using staged deposits in combination with an Equity Edge New Home Deposit Bond:

EXAMPLE: DEVELOPER REQUIRES 15% DEPOSIT ON A $300,000 UNIT ($45,000)

Here is how the offer may be structured:

$5,000 on signing

$5,000 in 30 days + $35,000 Equity Edge deposit bond, arranged by purchaser

The $35,000 deferred balance is due and owing:

• $5,000 on commencement of construction
• $10,000 120 days after commencement of construction
• $10,000 at roof stage, when occupancy is confirmed
• balance of $10,000 at occupancy

This way there is still less financial burden on the customer to produce the entire deposit requirement at the beginning of the sale transaction while the developer is able to use deposit monies, if needed, to assist in completing construction on time.