Why settle for someone else’s vision of the perfect home when you can build your own? Finding the right house isn’t always easy — especially in today’s competitive market. Building your own home might be the right choice for you.
Financing the building of a new home essentially requires two loans—a construction loan for the building process and a completion mortgage once the home is move-in ready. Fortunately, your mortgage broker in Calgary understands the procedures and will be there to assist you along the way.
Construction Loans Simplified: The Progress Draw
Obtaining financing to build a home is significantly different than getting a loan for an existing one because the risks to the lender are unusual. Because of this, loans are structured on the value of the home at each stage of construction, not the finished value. This is called “Cost to Complete Basis”.
Financing construction is done through what are referred to as progress draws. With this type of loan, payments are made to the builder at regular intervals during construction as specific benchmarks are met. Building that takes place before the first payment (or draw) is financed by your down payment. At each stage, completion must be verified by a licensed appraiser.
The draw points can vary by lender but should be relatively similar to the following:
- First draw – made at around 16 per cent completion of the foundation
- Second draw – made around 50 per cent of construction completion, generally when framing and installation of doors and windows is finished
- Third draw – made at around 75 per cent of construction completion, or about when plumbing, electrical and drywall is finished
- Fourth draw – made when construction is completed
Homebuyers will see higher interest rates for progress draws than those of a conventional mortgage – usually two to four per cent above prime – and this area is where the expertise of your Calgary mortgage broker will come into play. Unlike a mortgage that can last for as much as 30 years, this loan only lasts during the construction period. If homebuyers don’t already own the lot where construction is occurring, they might also need a land draw. Those who do own the land can put that value toward their equity.
If you are planning a new home construction project, Mortgages By Candice will find you the very best construction loan rates and terms available.
Financing Your Finished Home
After construction is finished, homebuyers will need a completion mortgage. This will pay the construction costs of the progress draw and then become similar to the type of mortgage you would have if you had purchased a home that was already built. While this might sound complicated, you can simplify the process by working with a mortgage broker in Calgary who understands the intricacies of construction loans.
Getting mortgage pre-approval is the beginning of your journey toward home ownership, and Mortgages by Candice will be there to guide you every step of the way. Candice will discuss processes like pre-approval and rate holds with you, and help you help you find terms suited to your individual financial needs. Today’s mortgage rates are nearly as low as they have ever been. Let your mortgage broker Calgary lock you in to the best possible rate before it’s too late.
In an already highly competitive market, listings of existing homes remain low, which makes finding the right one more challenging than ever before. Building a new home to meet your needs might be more within reach than you ever thought! Smart home buyers consult with an experienced broker to make sure they understand all their options. Mortgages by Candice offers a wealth of mortgage planning and financial services to help you meet your goals for tomorrow and beyond. Contact Candice today to learn how she can help you realize your vision and make your dream home a reality!