You should know this!! How to get a construction mortgage loan to build your dream home?

Many people dream of building their perfect home with every little detail carefully considered. However, with so many things to think about, it can be overwhelming to know where to start. One good place is to consider your budget.

A construction mortgage

Can help you finance the build of a brand new home or significant renovations and expansions to an existing property. It essentially works as a loan to finance the project during its construction period. Once the construction is complete, the loan becomes a normal mortgage and you'll have to repay it.

To qualify for a construction mortgage :

you'll likely need good to excellent credit, a stable income, a low debt-to-income ratio, and a down payment of at least 20%. During the construction period, you'll receive loan funds in stages called "draws" to complete different parts of the project. The lender inspects the work at each stage to ensure it's complete before the next draw is made available. Keep in mind that lenders usually charge a fee for inspections, and they're different from the ones you'll need for permits.

If you're buying a new construction home through a builder, you won't need to get a construction loan as it's already secured directly with them.

The following information should be kept in mind when planning to build a custom home.

First and foremost, it is essential to determine what type of home you want and how large you want it to be. Different provinces have varying regulations, so make sure you are well-informed before starting. It is advisable to hire a licensed architect and/or engineer to assist you in developing your plans, as it may be required.

While building, you might be tempted to incorporate unique features and unconventional floor plans. However, if you're considering reselling the house in the future, it's best to avoid such elements. Your REALTOR® can assist you in determining the most common and sought-after features of your neighborhood.

The land you choose to build on is another important factor to consider. Do you want to have a farm or raise animals? Is accessibility a concern? If you're building a custom home to retire in, consider the location's future and how accessibility may affect it later in life.

When purchasing the land to build on, you may require a different type of loan than if you were buying a new home through a builder with predetermined land. Vacant lots often come with higher interest rates and require larger deposits. Be sure to discuss your plans with your bank to explore all of your options.

You can obtain a construction loan from any major bank or broker

Which can be fixed or variable rate depending on your preferences. Be sure to inquire about the draw dates, percentage payout of the loan, and inspection fees at each stage.

Pro tip: fixed rate vs. variable rate

The difference between a fixed rate and a variable rate mortgage is fixed rates set the interest rate for the term of the loan, whereas the interest rate of a variable rate mortgage may go up or down depending on market conditions.

Be sure to ask your lender the draw dates and percentage payout of their loan, as well as their inspection fee at each phase.

Once you're approved for the loan

you can use it to secure the purchase of land with an initial draw or pay off any existing loan if the property has already been purchased. You can request subsequent draws from the lender as the construction progresses, subject to inspection.

Punctuality is critical to ensure that everything runs smoothly.

Consider the schedule around the completion of your project, including the payment of subcontractors and inspection fees. You'll also need to consider the sale of your current home or whether you'll need to find a place to live in the meantime.

Once the construction is complete and on schedule

The bank or lender will convert the loan into a mortgage with regular interest and principal payments. With the assistance of licensed, professional trades and contractors, as well as your REALTOR®, a construction loan/mortgage could be the key to your dream home! Imagine the satisfaction of moving into a house tailor-made just for you.

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