Building a home is a complex process; your mortgage shouldn't be.
Before reading all teh detail below I have highlighted most items of interest. Please be aware that each lender has different criteria but these basics may make it easier to understand. For detaild, up to date information write me at email@example.com or call me at 250-861-8758.
HIGHLIGHT AND OVERVIEW:
- Normally 4 advances but one additional and initial one can be for the land
- Max initial advance for the land is 65% of the “land” value
- All other advances are calculated by each inspection based on the amount of work in place BUT must have sufficient unadvanced/held back to complete. For example, inspector determines it is 38% complete. That means 38% of the mortgage may be advance BUT there must be 62% remaining. If the construction cost is equal to the mortgage, this is easy. If the mortgage is less than the construction cost (ie customer is putting say 200k of their own money), the customer’s money gets spent first as we need to have sufficient remaining to complete.
- The first construction advance is at least at “lock-up” aka “air tight” being walls are up, roof on and doors/windows in.
- The second construction advance is generally known as the rough-in stage (ie plumbing, electrical, heating/ac ducts, furnace)
- The third construction advance is either when it is complete OR, if there is a fourth construction advance, then it is just when it is further completed and then the fourth will be at completion.
- The first advance must meet the “lock-up” aka “air tight” minimum requirements whereas all subsequent advances are flexible to when and what has been completed and/or needed
- Each advance is subject to a 10% Construction Lien Act holdback. This is basic and standard. It gets released once the project is complete, not less than 45 days after such.
- Each advance gets charged an inspection fee (I think it is $150 but don’t quote me) and each advance goes through their lawyer which costs money as the lawyer has to, each time, do the requisite searches to ensure no other liens, work orders, judgements, etc before releasing funds.
- Final completion hence final release of funds is when the property is deemed at least 97% complete (ie maybe seasonal items such as driveway, sod and maybe some minor interior items aren’t done)
Before deciding on a brand new home, let Neil "Mortgage-Man" McJannet help you understand the special terms and considerations in construction mortgages, also known as self-build mortgages.
Our mortgage specialists can help you decide which option best suits your particular situation.
New construction financing options typically fall into 3 categories.
1. Self-Build Home
Self-Build Home is when you act as your own contractor; hiring subcontractors to complete the work. Your mortgage options are: Progress Draw Mortgage, Completion Mortgage
2. Self-Build: Builder/Contractor (turn key)
Self-Build: Builder/Contractor is sometimes referred to as Turn Key. This is when you enter into an agreement with a contractor to build your home. Typically the builder will request Financing Draws. Your mortgage options are: Progress Draw Mortgage, Completion Mortgage
3. Buying from a Builder (take out)
Mortgages on newly constructed homes, town homes, condominiums. Client requires funds when the home is 100% complete. Your mortgage options are: Completion Mortgage.
If you need a commercial mortgage or are simply planning ahead, contact a Mortgage Centre specialist today for a quick assessment and recommendations.
Your Mortgage Centre specialist is readily available to review the details of new construction financing. We encourage you to ask any questions you have and get the professional guidance you need to make an informed decision.
Building your dream home could be one of the most rewarding experiences you ever undertake. So how can you finance building your own home?
A self-build mortgage is exactly what it says, a loan you secure to finance building your own house. With a self-build mortgage the money is released in instalments, typically with an initial loan to buy the land. Payments are then made at different stages of the build.
The key to a successful build is to understand the steps involved, and to follow through with the many details involved in building a home. From the first idea to the finished project, planning ensures you have your bases covered.
6 Tips For A Successful Self-Build
- 1. Take neighbouring homes into account. Having the biggest and most expensive house in the area may be wonderful, but it may not be easy to sell.
- 2. Build for resale. No matter how long you intend to stay in the house you build, it will have to be sold at some point. It's generally not a good idea to build strictly for your own needs and tastes.
- 3. Get the best contractor your budget will allow. When building a house, quality is usually more important than quantity.
- 4. Be prepared for delays. Unexpected delays can happen which may prolong the entire process.
- 5. Monitor the progress. During construction a lot can be accomplished in a short amount of time. Catching a mistake early will save a lot of headaches later.
- 6. Watch your construction allowances. Generally, in the total cost of building a house you will be given allowances for such items as flooring (carpeting and vinyl), lighting, plumbing fixtures, etc. Make certain that you can actually get the materials you want within the allowance amount.
If you have any questions, contact your Mortgage Centre specialist.
Buying from a Builder
If you're looking for a brand new home without planning everything yourself, consider buying from a new home builder. This can give you the flexibility of defining the look and style of your home without being as involved in the self-build process. There are still many elements to consider, such as picking your lot, choosing your upgrades, and moving in, all of which can add up to a number of months, if not longer, to complete.
Contact your Mortgage Centre specialist to discuss your options, and take the first step in financing your brand new dream home.
6 Tips For Successfully Buying From A Builder
- 1. Do Your Research. Look at homes and communities and talk with builders. Do some pre-planning to help focus on the decisions ahead to help you prepare for a successful home search.
- 2. Define what you are looking for in your new home and community. By weighing your needs and wants, you'll be in the best position to determine what's most important to you. Then use your list to evaluate each house you visit.
- 3. Get pre-approved. It's a good idea to determine your price range before you start looking for your new home. Discuss your options for a pre-approval with your Mortgage Centre specialist. This will help you best understand how much you can afford to spend on your new home.
- 4. Selecting the right builder for you. When you choose to buy a new home, you should be confident in the company that will build it. Check to see that the builder has qualifications and is able to meet your needs and expectations. Ask for references and talk to other clients about the builder's work, or check the new home warranty program.
- 5. Warranty. Builders commonly offer a one-year warranty and after-sales service on workmanship and materials in your new home. This service may be backed up by a third-party warranty. Keep in mind that warranties vary from one province to the next, so check to make sure you understand yours.
- 6. Maintenance after completion. Many builders will provide you with a homeowner's manual describing the various elements of your home which set out the requirements for regular maintenance and service. This not only helps you to keep your home in great condition, it also helps to ensure that you do not void the warranty on your home.
Progress Draw Mortgage
A Progress Draw Mortgage means that funds are advanced in intervals as your house is being built. There are usually 3 draws at 35%, 65% and 100% completion. A Land Draw (conventional only) may be required if you're also purchasing the land.
- Each draw requires a Progress Inspection Report, which details the percentage complete prior to the advancement of funds.
- Most lenders assign 2 mortgage numbers in a progress draw, one that represents the actual draw of funds and another for the final advance of funds. Once the house is 100% complete and final funds have been advanced, the mortgage number 2 is the "completion" mortgage.
- The final advance will not be released until the final inspection confirms completion, and the final mortgage documents have been signed by you and returned to the lender by your lawyer (notary).
Please note - This feature is not available in Quebec.
A Completion Mortgage means that you've purchased or built your home through a Residential Home Builder and only require funds when the house is 100% complete.
- You are required to make a downpayment at the time of submitting an offer to purchase the property.
- Often, the downpayment is required in several instalments.
- Once the house is complete and ready for occupancy you will require funds from a mortgage to pay the builder the balance. Example: A client submits an offer to purchase their new build. The total cost of the home is $300,000. It will be ready in 12 months.
Payments are due as follows:
- $5,000 With Offer to Purchase
- $5,000 In 30 Days
- $5,000 In 60 Days
- $5,000 In 90 Days
- $280,000 Due on closing date 12 months from now
In the event that home completion takes more than 90 days, rate caps are available for up to 12 months depending on mortgage type and location. A rate cap locks in the maximum interest rate a client will receive for their mortgage, based on the rates at time of application. Rate caps are available on both Progress Draw and Completion Mortgages. All mortgages are subject to eligibility requirements and will vary by lender.