Have you ever dreamed of building your own home from the foundation up? You get a chance to create a home in the style and design that you want, something purely unique. You would be surprised how many homeowners choose to either build their own home or have a team of contractors build it for them. Many ask the question of whether or not you will be able to take out a mortgage for a new build home. The answer is yes, you can take out a mortgage for a new build or constructed home. A new build home requires a different type of mortgage than a conventional mortgage. This type of mortgage is known as a construction/new build mortgage and our Kitchener mortgage broker team is here to explain what that is and how it benefits you.
What is a Construction/New Build Mortgage?
A construction/new build mortgage is made specifically for a home that you are building, a contractor has built, or is in the process of being built. Instead of being given a lump sum of funds, as you would get with a traditional mortgage, you are given a set schedule for drawing down a percentage of the mortgage loan during different stages of the construction process.
How much you can qualify for when applying for a new build mortgage loan will depend on how much funding will be needed to complete the construction of the home. If you own the land that the home will be built upon, you may be able to use it as equity. This equity can then be put towards the first draw needed for construction. If you don’t own the land that you are going to build the home on, you will be able to make your first draw of cash from the mortgage to cover the needed funds to pay for the land.
If you want to build your own home, it can be beneficial to speak with a Kitchener mortgage broker who is experienced in this type of mortgage.
Different Types of New Construction Mortgages
There are two types of new build/construction mortgages that you can apply for: the Progress Draw mortgage and the Completion mortgage. You will also have three options available to you, depending on how the home is being constructed.
A Completion Mortgage is used when the home that you are having built is being funded by a builder or contractor. With a completion mortgage, funds will not need to be accessed until the home has been completely built.
Progress Draw Mortgages
A Progress Draw Mortgage is used when you will be funding the cost of construction. In this instance, you would be hiring a contractor or builder to construct the home. A progress draw mortgage is a bit more complex and will require a mortgage solicitor to create a contract. There are three stages in a progress draw mortgage when you are able to draw funds:
- 35% completion
- 65% completion
- 100% or total completion
You also have three scenarios to consider when applying for a construction/new build mortgage:
A Home Being Built By a Contractor That You Are Funding
In situations where you will be funding the cost of building the home but having someone else construct it, you are required to use a registered builder. You will need to have a legal contract drawn up between you and the builder. You can opt for either a completion or progress draw mortgage and will make the first draw when construction begins. This is so that you can pay for the supplies needed by the builder/contractor.
In this instance, where you are acting as the contractor and will be constructing the home and hiring sub-contractors to handle any specialty work, such as electrics and plumbing. You can choose either the progress draw or the completion mortgage.
A Home That is Funded and Built By a Builder
This is when a builder has constructed a home, such as a condo or a townhouse, and then sells it to a buyer. You only have the completion mortgage option in this instance.
Like a conventional mortgage loan, there is certain documentation that you will be required to submit. This will include bank statements, proof of your employment, proof of income, current assets, and debts. Additionally, you are required to provide proof of equity, such as land owned, and construction quotes. A contract between yourself and the contractor taking on the construction work will need to be drawn up, and you will need to submit the title and registry details if you own the land where the home is being constructed. A full home appraisal is required and you will need to show proof of insurance along with a House and Plans Specification document.
Choosing to have your home built yourself can be an exciting time. If you feel this is the right option for you, and you would like details regarding the mortgage options that are available to you, give our expert Kitchener mortgage broker team a call today!