Construction and Build Mortgages
Ever wanted to build that dream home of yours, but weren’t sure on how to get started or even how to plan it out financially? Many people nowadays prefer to build their own custom homes with special features to suit their lifestyles and personal tastes. While this can be an exciting and a creative experience, it can also present some very complicated financial challenges. A construction and a build mortgage is used in cases like this. A construction mortgage is a loan secured by real estate which is for the purpose of funding the construction of improvements or buildings upon the property, including the construction of a property from scratch itself.
Loan borrowed to finance the construction of a home, typically only interest is paid during the construction period. Once the construction is over, the loan amount becomes due and it becomes a normal mortgage. The money is advanced incrementally during construction, as construction progresses.
Financing to build a new home typically comes in the form of a construction-to-permanent loan. This financing option has two parts: a loan to cover the costs of construction, and a mortgage on the finished home. The advantage of such plans is that you have to apply only once and you will have only one loan closing.
Grasping this concept as well as the procedure can be a bit difficult as this is not entirely the same as the traditional residential mortgage. This is where you should consider seeking help from a mortgage broker like me. As a mortgage broker in Ottawa, I can provide you with an in-depth knowledge of construction mortgages, and give you the support you need from the start to the finish and guide you through the process while explaining all the important facts that are necessary for a successful project. Some of the very important aspects include:
- designing your home plans with an architect
- arranging a construction mortgage
- managing your home construction costs
- hiring a general contractor
- obtaining building permits
- constructing your home
Building a new home is a complicated process, however, your mortgage shouldn’t be. There are three types of new construction financing:
- The most common is the builder/contractor built home with your money. In this financing, the customer has entered into an agreement with a registered builder to build their homes and the builder requires financing draws, in which the lender. The mortgage options that are available for this financing is completion mortgage or progress draw.
- The second most common is the self-built home in which the customer wants to be the own contractor and hires sub trades in order to complete work. The mortgage options are the same, completion mortgage or progress draw.
- The last is the builder built home with their money, where the customer requires funds when the home is 100% complete. The mortgage option is completion mortgage.
Completion mortgage is the same as the normal mortgage. During the completion mortgage, you will have purchased/built your home through a residential home builder and will only require funds when the house is 100% complete. In this case, the customer, you, will pay a designated amount, for offer to purchase and once the financing condition is met from their resources and will only require a mortgage upon closing.
The progress draw mortgage is a type of funding which is advanced in intervals as the house is being built. There are three draws at 35%, 65% and 100% completion. There are various types of conditions that must be met in order to deem the house complete and the different stages.
Making the decision to construct your home from the scratch is a big decision to make. Getting in contact with an Ottawa mortgage broker like me can make your dream a reality and help you achieve your goal faster and with ease.