Karen Crane
Owning the home of your dreams always comes at a price. And whether you’re just starting out or you’re building your retirement cottage by the lake, chances are someone other than you will have to help finance the cost of building your dream.
Now, if you’ve been through the home building process before, you know that construction financing isn’t the same as taking out a conventional mortgage on an existing home. But if you haven’t had the pleasure of having a castle built just for you, there are a few things you should know about new home construction loan financing. For instance:
* Getting approved for construction loan financing can be tricky. Two loans are often required – one for the construction period and one for permanent financing. Which means you’ll have to shop for both loans separately and will likely incur closing costs for both. However, if you qualify for a loan with a company that offers Construction-to-Permanent loans, both loans will be rolled into one – and take the extra steps out of getting your dream home financed.* Bridge Loans can help secure your new owner-occupied primary residence home loan before you sell your current home. If you already own a home, a Bridge Loan will allow you to tap into the equity in your existing owner-occupied residence and use it as a down payment on a Construction-to-Permanent loan. When you sell your current primary residence or your new home is finished, you will simply pay off the Bridge Loan and make payments on your new home construction loan financing (a.k.a. – your mortgage).* If you’ve found the right location – but aren’t ready to build your dream home – you can buy only the land and build on it later. Simply find a lender that makes Lot Loans, which is short-term financing that will give you time to choose an architect and builder to give you your perfect escape. Of course, many lenders are cautious about lending money on land, because it can be difficult to resell if the buyer defaults on the loan, so many request a large down payment with a high interest rate. So shop around for the best possible loan and save your money for the down payment on your construction loan financing.
Going through the process and doing your research will certainly yield additional information from experts in the field. But if you know what types of loans to look for – and what they’ll mean for you as your new home is being built – making the right decision for you and your financial situation will be a lot easier.
Karen Crane is a mortgage broker who has learned about the world of custom home plans the hard way. Having gone through the process of building three homes, she has finally settled into her dream house.
Ben Schmidt of www.benschmidt.tv a Fredericton NB and Oromocto NB Real Estate Agent video blogs about New Home Construction Mortgages with Special Guest Shawn MacDonald Q – How do you finance a new home construction, when you are the contractor yourself? It's called a Self Build Progress Advance, and money is issued at different stages of completion. Below is an example of how it could be structured. At 40% completed – This is when the house is dry. Foundation, framing, roof with shingles, windows, doors and ty papered. At 60-70% completed – This is typically around the time when electrical is in and you're about to drywall At 100% completed – this is when the rest of the money is released and you are now in your new home, and paying a mortgage like any other. You pay Interest only payments on the money advanced, until the home is 75% completed. That's when you add your principal amount to your mortgage and you can start to build equity. Q – What does the bank want to see from me, the builder, before they'll lend me money – A deed or title to a peice of land, or the purchase and sale agreement for one – A copy of a quote for every stage of the building process – A copy of the house plans Q – How much money will the bank give me? When receiving all of the quotes, plans, and knowing the lot for the home, the bank will order an appraisal. The bank will lend out the appraised value of home or the estimated cost of building, whichever is less. If you have …
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