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We recently hosted a giveaway on Facebook and as part of that giveaway we asked our followers what topic they (you!) would most like to read about next in our blog. Unexpectedly, the majority of folks wanted more information on New Construction financing and money saving tips and tricks! To date, we have not posted a lot of information about New Construction. Perhaps that’s why the majority asked for more information on this topic. Der! Nothing gets by us! This also tells us that our followers are following i.e. we didn’t receive many requests for information that is already abundantly available. We won’t go as far as to predict a trend in this area, but we can confidently say that we are indeed fielding more questions and working on new construction deals more frequently now than we have over the past couple of years. Ah, the ebb…the flow. The mortgage and real estate industry is never boring. Now, to the good stuff…

There’s quite a lot to learn i.e. special terms and considerations in construction mortgages, also known as self-build mortgages. So before heading out on this path, please read this post in its entirety because we are here to help you understand the process and your options.

Typically, new construction financing options fall into 3 categories.

  1. Self-Build Home
  2. Self-Build: Builder/Contractor (Turn Key)
  3. Buying from a Builder (Take out)

The end.

KIDDING!

Self-Build 1

Self-Build is when you act as your own contractor. You hire subcontractors to complete the work. You have two mortgage options: Progress Mortgage, Completion Mortgage.

Self-Build: Builder/Contractor is also referred to as Turn Key. You enter into an agreement with a contractor to build your home. The builder will usually request Financing Draws. You have two mortgage options: Progress Draw Mortgage, Completion Mortgage.

Buying from a Builder (Take out): Mortgages on newly constructed home, town homes and condominiums. You will require funds when the home is 100% complete. You have one mortgage option: Completion Mortgage.

If you need a mortgage for a commercial purchase or if you are just planning ahead, contact Your Money Matters Inc. today for a quick assessment and recommendations. Our mortgage brokers and agents are available to review construction details and financing. Please ask any questions you have – you will get the professional guidance needed to make an informed decision.

Self-Build Mortgage

Building your dream home is likely to be one of the most rewarding and exciting experiences you ever undertake. But, how can you finance the build of your own home? So glad you asked!

A self-build mortgage is exactly what it says; it is a loan that you secure to finance building your own house. With a self-build mortgage the money is released in installments, typically with an initial loan to buy the land. Payments are then made at different stages of the build.

The key to a successful build is to understand the steps involved, and to follow through with the many details involved in building a home. From the first idea to the finished project, planning ensures you have your bases covered.

Here are 6 Tips for a Successful Self-Build

  1. Take neighbouring homes into account. Having the biggest and most expensive house in the area may be wonderful, but it may not be easy to sell.
  2. Build for resale. No matter how long you intend to stay in the house you build, it may/will have to be sold at some point. It’s generally not a good idea to build strictly for your own needs and tastes.
  3. Get the best contractor your budget will allow. When building a house, quality is usually more important than quantity.
  4. Be prepared for delays. Unexpected delays can happen which may prolong the entire process. Prolonging the process usually affects your budget.       Either/both of these can affect the scope of the project.
  5. Monitor the progress. During construction a lot can be accomplished in a short amount of time. Catching a mistake early will save a lot of headaches later.
  6. Watch your construction allowances. Generally, in the total cost of building a house you will be given allowances for such items as flooring (carpeting and vinyl), lighting, plumbing fixtures, etc. Make certain that you can actually get the materials you want within the allowance amount.

If you have any questions, contact Your Money Matters Inc.

Self-Build 2

Buying from a Builder

If you’re looking for a brand new home but you don’t want (or can’t) plan everything by yourself, you should consider buying from a new home builder. This can give you the flexibility of defining the look and style of your home without being as involved in the self-build process. There are still many elements to consider, such as picking your lot, choosing your upgrades, and moving in, all of which can add up to a number of months, if not longer, to complete.

Contact a Your Money Matters Inc. broker to discuss your options, and take the first step in financing your brand new dream home.

6 Tips for Successfully Buying from a Builder

  1. Do Your Research. Look at homes and communities and talk with builders. Do some pre-planning to help focus on the decisions ahead to help you prepare for a successful home search.
  2. Define what you are looking for in your new home and community. By weighing your needs and wants, you’ll be in the best position to determine what’s most important to you. Then use your list to evaluate each house you visit.
  3. Get pre-approved. It’s a good idea to determine your price range before you start looking for your new home. Discuss your options for a pre-approval with a Your Money Matters Inc. mortgage specialist. This will help you best understand how much you can afford to spend on your new home.
  4. Selecting the right builder for you. When you choose to buy a new home, you should be confident in the company that will build it. Check to see that the builder has qualifications and is able to meet your needs and expectations. Ask for references and talk to other clients about the builder’s work, or check the new home warranty program.
  5. Warranty. Builders commonly offer a one-year warranty and after-sales service on workmanship and materials in your new home. This service may be backed up by a third-party warranty. Keep in mind that warranties vary from one province to the next, so check to make sure you understand yours.
  6. Maintenance after completion. Many builders will provide you with a homeowner’s manual describing the various elements of your home which set out the requirements for regular maintenance and service. This not only helps you to keep your home in great condition, it also helps to ensure that you do not void the warranty on your home.

Self-Build 3

Progress Draw Mortgage

A Progress Draw Mortgage means that funds are advanced in intervals as your house is being built. There are usually 3 draws at 35%, 65% and 100% completion. A Land Draw (conventional only) may be required if you’re also purchasing the land.

  • Each draw requires a Progress Inspection Report, which details the percentage complete prior to the advancement of funds.
  • Most lenders assign 2 mortgage numbers in a progress draw, one that represents the actual draw of funds and another for the final advance of funds. Once the house is 100% complete and final funds have been advanced, the mortgage number 2 is the “completion” mortgage.
  • The final advance will not be released until the final inspection confirms completion, and the final mortgage documents have been signed by you and returned to the lender by your lawyer (notary).

Please note – This feature is not available in Quebec.

Completion Mortgage

A Completion Mortgage means that you’ve purchased or built your home through a Residential Home Builder and only require funds when the house is 100% complete.

  • You are required to make a downpayment at the time of submitting an offer to purchase the property.
  • Often, the downpayment is required in several installments.
  • Once the house is complete and ready for occupancy you will require funds from a mortgage to pay the builder the balance. Example: You submit an offer to purchase a new build. The total cost of the home is $300,000. It will be ready in 12 months.

Payments are due as follows:

  • $5,000 With Offer to Purchase
  • $5,000 In 30 Days
  • $5,000 In 60 Days
  • $5,000 In 90 Days
  • $280,000 Due on closing date 12 months from now

In the event that home completion takes more than 90 days, rate caps are available for up to 12 months depending on mortgage type and location. A rate cap locks in the maximum interest rate a client will receive for their mortgage, based on the rates at time of application. Rate caps are available on both Progress Draw and Completion Mortgages. All mortgages are subject to eligibility requirements and will vary by lender.

S-o-o-o, there you have it. Everything you need to know about new build financing in one handy, good-lookin’ place! Okay, it is in fact an overview, but we are here for you when the time comes to lock in the best rate and mortgage product for your specific needs.  Let us help you see your vision through to the end. We are happy to answer any questions that you have from the outset to completion.

You should know that our team members also have personal experience with new-builds. We can certainly facilitate the mortgage transactions but along the way we can offer up our personal experiences with researching contractors, getting referrals, how to save money on materials etc., as well. We all know that knowledge is power. Please know that networking is a key element as well. Get to know us. We want to get to know YOU! Our experience is essential to your process and success. You deserve the best at every turn. Why would you even consider going elsewhere? 😉

Silliness aside, the purchase of a new home is mind-blowingly exciting from start to finish and as you now know, there are details … lots and lots of details to filter through and many decisions to be made. We’d love to join you on your journey; to assist with every necessary aspect. To get started now, just give us a call. You can reach us by telephone at 905-850-6868 or by email at info@yourmoneymattersinc.ca

Thank you to all for your ongoing support and suggestions.

Talk soon!

Roy Perreault – Operations Manager, The Mortgage Centre | Your Money Matters Inc.