A construction mortgage can provide the financing you need to create the custom home you want.
Many Canadians are choosing to build custom homes with special features to suit their lifestyles and personal tastes. While building your own home can be a creative and exciting experience, it can also present some complicated financial challenges.
A construction mortgage can help you finance the cost to purchase that perfect building lot, as well as the construction costs to build your dream home. Whether you already own your lot or are still on the look-out for that ideal location, The Woollam Mortgage Team can help.
Oftentimes, construction loans will include a contingency reserve to cover unexpected costs that could arise during construction, which also serves as a cushion in case the borrower decides to make any upgrades once the construction begins
Construction loans usually have variable rates that move up and down with the prime rate. Construction loan rates are typically higher than traditional mortgage loan rates. With a traditional mortgage, your home acts as collateral — and if you default on your payments, the lender can seize your home. With a home construction loan, the lender doesn’t have that option, so they tend to view these loans as bigger risks
One way we do that is to help clients who plan to build finance their own homes with construction-to-permanent loans. With a construction-to-permanent loan, in many cases, you’ll only pay interest during the building process – an important benefit, especially if you are paying for another place to live while you build.
Construction-to-Permanent Loans
- May be used for new construction, renovation for existing or new purchases, including primary and second homes.
- The interest rate is locked at the construction closing.
- Interest-only payments during the construction period.
- Allow the equity in your land to be considered towards your down payment, depending on the value of the property and the down payment requirements of the loan.
Some of the documentation you’ll need for these loans includes building plans, a selected contractor, a construction schedule, and your property deed.
In many cases, you only pay for one closing. This can save you money on recording fees and other closing costs that might occur with an additional closing for a permanent loan.
Once construction is complete the loan converts to a permanent loan. You can finance up to 90% of the construction expenses or value of the home; whichever is lower. After construction, you will need updated documentation to convert to a permanent loan.