New Construction in Ontario: How Your Deposit and Mortgage Actually Work

Two things nobody explains at the sales office

Buying a resale home and buying a newly built one look similar until the deposit clears and the framing starts. Two mechanics are genuinely different: where your deposit sits for the months — sometimes years — before your new home is finished, and how your mortgage money actually reaches the builder.

On a resale purchase, your deposit is typically held by a lawyer or a real estate brokerage in trust, and your mortgage funds are advanced to your lawyer as one amount on closing day. On a new-construction purchase — a freehold house on a lot that hasn't been graded yet, or a condo unit that exists only on paper — both of those assumptions can be wrong, and almost nobody walks you through it before you sign.

How your deposit is protected before closing

Ontario doesn't leave a new-home deposit unprotected, but the protection has real limits — it isn't the same as your lawyer holding the full amount in trust.

Tarion, the province's mandatory new-home warranty administrator, protects a buyer's deposit when a builder goes bankrupt, fundamentally breaches the purchase agreement, or when the buyer uses a statutory right to end the agreement — for example, if the builder pushes completion past the latest date allowed in the agreement (Tarion, How Does Deposit Protection Work on New Homes?).

• Freehold homes priced at $600,000 or less: your deposit is protected up to $60,000.
• Freehold homes priced over $600,000: protection equals 10% of the purchase price, capped at $100,000 — not the full deposit if you've put down more than that.
• Condo units: builders are required under the Condominium Act to hold deposits in trust. Tarion adds a second layer — up to $20,000 — if that trust requirement wasn't met.

Certain other new-home payments, like upgrades you select before closing — flooring, countertops and similar selections — are covered within these same limits. What isn't covered: money paid to reserve or hold a home before you've actually signed the purchase agreement. A reservation fee paid at that stage sits outside deposit protection entirely.

A new notice window worth knowing about

A genuinely new requirement now applies to freehold new-home purchases, and it turns on a clock most buyers don't know is running.

As of April 1, 2026 — the date was originally set for January 1, 2026 and later pushed back — new freehold home purchasers need to give Tarion notice of their signed purchase agreement within 45 days to qualify for the maximum deposit protection described above. Tarion has deferred the actual change to coverage amounts until January 1, 2027, so every buyer currently still qualifies for full protection regardless of notice timing — but the 45-day window itself is already running, and once the deferral ends, missing it means falling back on a separate, capped fund instead of the standard limits (Tarion, Deposit Protection Q&A). Condo purchases aren't affected, because condo deposits are already covered through the Condominium Act's trust requirement.

What deposit protection does not cover

Protection has a ceiling, and it's worth understanding where.

A large deposit on an expensive freehold home can still leave real money exposed — put down $150,000 on a $1.2 million home and the protected amount tops out at $100,000, not the full deposit. Money paid before a purchase agreement exists isn't protected at all. And deposit protection only responds to specific triggers — a builder's bankruptcy, a fundamental breach, or your own statutory right to walk away — not simply changing your mind.

• Ask your lawyer to confirm, in writing, exactly what your deposit protection would cover at your purchase price before you increase a deposit for a builder incentive.
• Keep every receipt and the purchase agreement itself — a claim to Tarion needs both.

Why your mortgage might not close in one lump sum

The other surprise shows up later: how the mortgage itself gets paid out.

On a resale purchase, your lender advances the full mortgage amount to your lawyer on one closing day. New construction often doesn't work that way. Construction financing — including CMHC's own Improvement program for new builds and larger renovations — is commonly disbursed as a series of progress advances rather than one amount. Under CMHC's Full Service option, CMHC itself validates up to four consecutive advances at no extra cost; under Basic Service, the lender validates each advance without needing CMHC's pre-approval (CMHC, Improvement Mortgage Loan Insurance).

Each advance is typically tied to a completed construction stage — foundation, framing and finishing are common checkpoints — and a lender will usually order an inspection or appraisal before releasing funds, to confirm the claimed work is actually done. In May 2026, CMHC expanded this approach with Prefab Plus, extending mortgage insurance support to prefabricated and modular construction: buyers can receive mortgage funds in up to four stages tied to construction milestones, instead of as one payment at completion (CMHC, CMHC Expands Mortgage Insurance Support for Prefab, Modular Construction).

What to ask before you sign

None of this should stop you from buying new. It should change what you ask before you sign.

• What is my deposit's protection limit at this purchase price, in writing?
• Has the builder given Tarion notice of my agreement, and when?
• Is my mortgage being advanced as one amount at closing, or in stages — and if it's staged, what triggers each draw?
• What happens to my closing date if a draw is delayed?

The full process between an accepted offer and the keys is covered more broadly on our Buying a Home page, and if this is your first purchase, First Home Hub walks through the down payment and qualifying pieces specific to a first-time buyer. If you want to see what closing actually costs on top of the deposit, the closing costs tab in our mortgage calculators is a reasonable place to start before you sign anything.