Building a New Home – Financing

Finding a place to call home is an exciting adventure, but having your perfect vision come to life is even more so. If financing is needed, there is a series of aspects to consider.

The first thing to keep in mind is that it does take longer to get a loan for a new build as opposed to purchasing an existing property. The reasoning is simple: since a new construction is considered to be a riskier venture, a larger down payment will normally be required, and the applicant’s financial standing will be scrutinized more thoroughly. A longer waiting period is to be expected for a loan of this type, not to mention a construction budget available at the start.

Even though financing for a new build is more complex than for an existing home, it is possible to fulfill this dream if the right steps are taken.

Purpose of a Mortgage

First, it is necessary to have a clear understanding of the purpose of such a loan. It all comes down to one of the following: the purchase of land on which your future home will be built, or a construction mortgage for an existing piece of land.

Mortgage Types

In the province of Ontario, new homes can be financed in any of the following ways:

  1. Builder/contractor – construction will be done by a registered contractor, with your money.
  2. Self-built – you are your own contractor.
  3. Buying a newly-built home – the house is built with contractor money, and you will need to pay them to become the new owner.

Financing Options

Process-draw Mortgage

This is a staged loan – each part (usually three parts total) is granted when a particular completion stage is reached. The first one is at 35% of construction work – when roofing is done, the second one is at 65% – after plumbing and electricity are in place but before drywall goes in, and the last one is at 100% – when the home passes its final inspection, and you are ready to move in.

Completion Mortgage

This type of loan is perfect for when you are buying your house from a residential builder and need the cash when you are ready to move in. The advantage – a smaller down payment and the need for a full payment only when the last inspection is successful.

Combination

It is possible to combine the two types of mortgage, depending on the case. If that’s the route you choose to take, the normal procedure is to start with a process-draw loan and then get it converted into a completion mortgage.

Getting Ready for a Loan

If you already own a lot, it can be used as equity (a guarantee on mortgage repayment). The same is true for any other property you might own. Besides a record of such assets – if any – you will be asked to show a good credit history, as well as proof of income. Even though getting a mortgage on a new build requires going an extra mile, it’s well worth it when you see your dream home become a reality.

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