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Qualified Builder Completion & Self-Builder Draw Mortgage Construction Lending
A lot of time, thought and effort goes into building a new home from layout to finishes, the process can be quite extensive and overwhelming. For many people who choose to build their home, the details of their construction loan or construction mortgage is often overlooked and can make the difference between achieving financing or going back to the drawing board.
There are two approaches to building a new home and the requirements for each can be a little different. Continue reading to understand the difference before deciding which type of build is right for you.
Utilizing a Qualified Builder with a Completion Construction Mortgage
If you are purchasing a home from a qualified builder for a fixed price upon completion of the build, you will be looking to apply for a completion construction mortgage. Completion construction mortgages can be arranged in a very similar way to arranging a mortgage for an existing home purchase. Since financing is only arranged once the home is completed, there is no more risk for the lender with this type of construction loan than a resale property.
Features of a Completion Construction Home Mortgage
Builder owns the lot where the home is to be built.
Money is required only when the home is 100% complete – similar to an existing home purchase.
The lender may require an appraisal before, during, or after the build to ensure the home is worth the amount being mortgaged.
Your down payment is still needed which can often be paid in a series of instalments.
Mortgage agent will not require an administration fee to arrange this type of financing since this type of construction mortgage is very typical to a resale property mortgage.
Required Documentation for a Qualified Builder Completion Construction Mortgage
Signed and accepted copy of building contract.
One complete set of house plans and working drawings / blue prints.
Site Plan showing legal description, dimensions of property in detail.
Confirmation from the Builder that they are a “New Home Warranty” builder.
An Appraisal indicating post-construction final value of the home.
Approval process for a completion construction mortgage is also the same as it would for financing an existing home. The appraised value will be the sum of the value of the home and the land. Since access to mortgaged amount will not be available until the home build is complete, it is important to ensure you have any required funds which must be paid before the build is complete. Down payment and other miscellaneous expenses may be necessary during the construction process, so having adequate funds available is important.
2. A Self Builder Home : This is referred to as a "Progress Draw Construction Loan"
Progress draw construction loans are used if you plan to build a home as your own general contractor, or have purchased the land and have hired a qualified builder to construct a home on it for you. This would mean that you are hiring sub-contractors or hiring one builder to sub-contract the entire project for you on your land.
Progress Draw – Two Separate Construction Loans
With a progress draw construction loan, the mortgage agent must set up two separate loans; a short term construction loan to fund the build, then a construction mortgage once the build is complete. The final construction mortgage is typically arranged 30-45 days before the completion of the construction and will pay off the progress draw loan in full.
You can apply here for a progress draw construction loan on-line if this type of financing fits your needs, or contact us if you need some more guidance!
Features of a "Progress Draw Construction Loan"
Buyer usually owns or purchases the land on which the home will be built.
Usually three draws of funds at the 35-40%, 65-70% and 100% completion stages.
Completion is verified at each stage by a progress report from an appraiser.
A down payment is still needed upfront, but can often be paid in a series of instalments.
Interest rates are significantly higher than a traditional mortgage since the term is usually for only about 6 months. Prime + 2-4% is common.
Mortgage agents do not receive a commission on this type of financing and usually charge an administration fee due to the added time and effort that must be committed to a progress draw construction loan.
Required Documentation for self builder draw construcition loan financing.
Copy of Land Contract if land is being purchased or copy of Title of land already owned
Resume confirming good knowledge of the home building process.
One Complete set of house plans and working drawings / blueprint.
Site Plan showing legal description, dimensions of property in detail.
Copy of all Sub-Contracts which confirm Home Construction Costs.
An Appraisal indicating post-construction final value of the home.
Approval process for a self builder draw construction loan is the same as it would for financing an existing home. The appraised value will be the sum of the value of the home and the value of the land.
Note:
While other arrangements and agreement of terms may be formulated between the qualified builder and purchaser, or as a self builder.... Regardless of the situation, it is always important to consult with your mortgage agent while decisions are being made before and during the construction process of your home.
To Speak directly about your specific situation and requirements, please contact me directly. Alternatively, you can get the ball rolling by applying directly here on our website. Please enter as much information as you can, agree to the terms and send. It comes to me directly giving me the opportunity to review and have a more informed discussion with you. The application process also provides us with a "soft touch" of your credit bureau without affecting your rating but allowing us to paint a better picture of your specific situation. Download our "MOPOLO" App here which provides access to Mortgage Alliances many tools including creating your profile, Credit applications, current mortgage rates, financial calculators, know your credit score every month, and important updates on the market.
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