If you have ever thought about building a brand new home there are many considerations including your financing options. This can be complicated depending on the route you take to complete the building of your new home.
Financing for new construction generally fits into three categories.
1. A Self-Build Home
This is where you act as your own contractor. You hire all of the sub-trades to complete the work. Most lenders are going to require that you have experience in the construction industry and the contingency budget will be higher than if you hired a contractor. This type of build will require two mortgages to be arranged – A Progressive Advance Mortgage during the building of the home and then a Completion Mortgage when the home is finished.
2. A Contractor Build
This is where you enter into an agreement with a contractor to build and complete the home for you. The builder will request draws at certain stages on the construction. Most lenders will require that you have a fixed contract so the cost of the build is determined up-front and not a cost-plus agreement. This type of build will also require two mortgages to be arranged – A Progressive Advance Mortgage during the building of the home and then a Completion Mortgage when the home is finished.
3. Buying Directly From A Builder
This is when you are buying either a unit at a condo or townhouse project or a newly constructed home. Only one mortgage needs to be arranged – A Completion Mortgage.
When it comes to deciding how you will finance your new home build, there are several options available. This includes mortgage products that offer a smooth start-to-finish solution along with an option to finance the land purchase. This is all included in the one mortgage product. This can be a more seamless alternative while still allowing you the option to move to another lender for your Completion Mortgage.
There are several things to consider when choosing your lender such as:
– What rate is being charged on the land loan?
– How many registration fees are going to be charged?
– What are the inspection costs?
– What terms and options are available for the Completion Mortgage?
– What rate are you being locked into and is it set at the beginning of the construction or when the home build is completed?
There are many lenders that only provide financing for the construction phase. These lenders can have more flexibility on the funding stages so there aren’t any awkward funding gaps. They are experienced in construction financing and provide a dedicated experienced contact to manage your Progressive Draw mortgage and answer all of your questions along the way.
When your home is complete then a Completion Mortgage can be arranged with another lender. This can be benefit as you are not tied to the offerings of the lender that provided financing for you build. That lender may not have the most competitive rates and terms. This leaves your open to other terms and rates that can be negotiated with lenders that do not provide Progressive Draw Mortgages.
If you are interested in finding the perfect solution for your new home construction financing, please give me a call at 888-561-2679. We would be happy discuss all of the options that are available to help you build your dream home.
April Dunn is a Mortgage Broker who has been assisting clients to purchase, refinance or renew their mortgages for over 25 years. April is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects and specializes in Strategic Mortgage Planning. April provides a full range of residential and commercial mortgage financing for clients all over the province of British Columbia and across Canada through the Mortgage Architects network. April can be reached at 888-561-2679 or email@example.com