New Home Construction Mortgage
If you are thinking about building a new home, chances are you need a new home construction mortgage in Alberta. This mortgage is different than a traditional mortgage in that the loan is funded in either 3 or 4 different ‘draws’. This is why these loans are commonly known as draw mortgages. You also generally pay interest on the drawn down amount every month even though you are not living in the home.
Construction mortgages can also be a bit tricky depending on who owns the land. If the builder buys or has an arrangement with the developer to buy the land, qualification is easier. The down payment required is also minimal in these cases. If however, you have to purchase the lot upfront, than it gets significantly more expensive as the lender will only finance 75% (max) of the lot value. Some lenders will only lend 50% of the lot value. For those clients looking to buy from a big builder in the city, this should not be an issue.
A Completion Mortgage is a Draw Mortgage With a Twist
Often you will hear a builder say that you don’t need a draw mortgage to build with them, they build the house with their own money. This situation is a bit different, as the mortgage is not needed till the home is completed. Completion mortgages are similar to a regular mortgage except the closing date is farther out then the standard 120 days. These situations simplify the qualifying process and are generally cheaper for the client in terms of interest paid during construction.
Regardless of which type of new home construction mortgage you need, we have solutions. Talk to us today about our draw mortgages in Alberta.
Typical Draw Schedule for Construction Loan
40% First Advance: Lockup – At least 40% complete.
65% Second Advance: At least 65% complete. Drywalled, plumbed and wired, furnace installed.
85% Third Advance: At least 85% complete. Kitchen installed, bathrooms completed.
100% Fourth Advance Received: 100% complete
This schedule can vary from lender to lender, depending on the number of draws they typically do, however this gives a basic framework for how the draws are completed. Regardless of when your builder wants the money, banks do not fund outside of their draw schedules.
9 Tips for Building a New Home
- Location, location, location. Area is key to good property value today and down the road when you decide to sell you home.
- The lot itself should be analyzed closely. Pie lots are more popular than corner lots as an example.
- Do not over personalize the home. Everyone thinks this will be their forever home, but there is a good chance it won’t be; build the home as if you are going to need to sell it at some point.
- Do your homework on the builder. Some builders have a bad reputation for a reason.
- Make sure you have sufficient funds for overruns and extras. You will make changes along the way, but keep your budget in mind as it may not be able to be added to the mortgage.
- Monitor construction closely, your construction superintendent cannot be there every minute.
- After your home is complete, stay on top of your builder to fix issues as there will be problems.
- Make sure you have sufficient funds for works not to be completed by the builder such as fencing and landscaping.
- Try to enjoy the process, as the stress can sometimes take over. Building is a great experience, just know what you are getting into before hand and be ready to face these issues head on.
When you work with RateDeals.ca, you will have a partner working with you in your corner as you go through the process. Talk to us today about our draw mortgage options here in Alberta!