New Construction Mortgage

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.