Building your own home can be a wonderful and exciting experience. Nothing quite rivals the feeling of living in a home built to your precise specifications. However, we know that this process can quickly turn into an expensive one. Paying for home construction up front is something that many cannot afford and getting a mortgage can often prove to be difficult.
Construction loans are shorter term, higher interest rate loans that cover the cost of building or rehabilitating a house. The lender pays a construction loan to the contractor in installments as building milestones are achieved. Once the building is complete, home construction loans are either converted to permanent mortgages or paid in full.
The building is your chance to have everything you want in a home, but the construction loan process can be complicated
Construction loans can be used to purchase land as well as rehabilitation of existing structures.
Flexible draw schedules
Interest-only payments on amount dispersed
Available for on-site home construction and modular homes
Loan-to-value depends on case by case.
Terms up to 30 years on either fixed or adjustable-rate mortgages
Buy the land and receive construction funds in all one closing or come back for a construction or renovation loan later
Construction loans are loans that finance the building of a new home or substantial renovations to a current home. These loans are typically short-term, variable interest rate loans. They are designed to cover the costs of land, plans, permits and fees, labor, materials, and closing costs. They also cover contingency reserves if construction goes over budget.
Different forms of construction financing
Land Purchase Loans: Developed land, serviced lots, single lots, multiple lots.
Site Development Loans: Landscaping, roads, sewers, and other infrastructure.
Building Construction Loans: Home renovation, building addition and new construction for residential or commercial applications.
Construction Bridge Loans: Covers funding shortfalls near the end of a project unmet by the building construction loan.
Condo Inventory Loans: Provides additional capital after construction to cash flow the project until condo registration is received.
Long Term Take Out Loans: Long term mortgages that payout construction loans once an occupancy permit is received.
Winning a construction loan is often a complicated process that requires the borrower to know the right people and create a feasible business case for a proposed development.
To get a loan request approved, the borrower needs to win over the trust and confidence of the right construction loan manager. To build trust, the borrower will first need to pull together the right team including an experienced general contractor with a record of quality and on-time work as well as a healthy financial position. The general contractor helps build a construction timetable, budget, and detailed plans. Also, the borrower must create a sound and feasible financial plan based on market dynamics, location, and capital requirements.
Get in touch with TheMortgageRate.ca construction loan expert to schedule an appointment to discuss your project.