New Construction Mortgage Financing
Are you thinking of building a home? There are lots of things to weigh out – are you going to use a Custom Builder, or a Spec Home Builder? Does the builder require deposits during the construction process or will they fund the cost of construction so you just need a mortgage at the end. Does your builder have New Home Warranty, are they a reputable builder?
There are lots of important questions to ask and asking up front will help you save mortgage headaches.
Completion Builder Mortgage
Most builders will accept a 5% deposit up front, and then will fund the cost of construction, allowing you simply close your mortgage at the end before moving in. This is by far the simplest builder mortgage but often times people make the mistake of thinking that because they don’t start paying their mortgage until the end, that they don’t need to get a full mortgage approval up front. This couldn’t be further from the truth.
You always need to be pre-approved up front, but also approved up front. This is a two part process and is very important. The Pre-Approval allows you to sit down with the builder and write an offer, but your approval that I get you is what allows you to meet with the builder and waive your conditions and give you 5% deposit so that construction of your new home can begin.
It is very important to get this full approval up front so that you’re confident you have a mortgage in place when it’s time to move in.
Draw Builder Mortgage
For builders that require you fund the construction of your new home as you go, this is what a Draw Mortgage is for. We get you approved up front so that you know how much down payment you need, and how much money the bank will give you at each stage of the construction process. This information gets relayed to your builder so that you and your builder can agree on a payment plan.
Typically a construction mortgage has 4 or 5 advances to help cover costs as you go, and an inspection is needed at each stage to ensure the builder has completed the required work. Some Financial Institutions enable you to lock in your rate up front, whereas others give you builder rate and then lock in your final rate at the end once your home is complete.
No matter which mortgage you need, make sure your builder has Home Warranty and is a reputable builder with references you can reach out to.