Mortgage and Real Estate Calgary

How a home construction mortgage can help you get the house of your dreams.

How a home construction mortgage can help you get the house of your dreams.

If you’ve decided the only way to get everything you want in a house is to have it custom built, you’ll probably need a construction loan. Because buying a lot and building a house is more complicated and time-consuming than simply moving into an existing home, construction loans usually involve more expense and effort than regular mortgages. However, this may be the only way to turn your dreams into reality!

Construction loans typically have terms of one year or less—since the home will hopefully be finished by then—and usually involve interest-only payments. The interest rate will be higher than on permanent mortgages, and the lender will require more documentation, including a construction timetable, comprehensive plans and a detailed budget. Once approved, the lender will set out a schedule of payments or “draws” that coincide with the stages of construction. The lender will inspect progress at each stage before approving the next payment. It’s important to check with your lender in advance because these “progress draw mortgages” may not be available in all areas.

 

Construction will be judged complete when all contractors have been paid, any liens have been released, and a certificate of occupancy has been issued. Usually at this point, the lender will roll over the loan into an ongoing mortgage, with closing costs only having been charged once.

 

Qualifying for a construction loan requires a more substantial banking history and credit score since there’s lesscollateral (bare land or unfinished home) for the lender to collect on. Since there’s more risk to the lender, you may be expected to make a 20% or higher down payment. In some cases, you’ll need two loans: one for the land and one for construction.

 

If the idea of having a dream home custom built appeals to you, please give us a call today. As your local mortgage experts, we can explain all the details, let you know which lenders offer construction loans, and help streamline the whole process for you.