An Overview of Red Deer Construction Mortgages or Builder Mortgages
There are times you can’t find the house you want, and this means you have to build it. Instead of taking out a conventional mortgage, the solution is a construction mortgage or draw mortgage.
Construction mortgages differ significantly from traditional mortgages. The mortgage funds are advanced in multiple lump sums or “draws” until the home is ready to occupy. One of these “draws” is for the purchase of the land, while other payments are given with the intent of paying for construction of the new home to the builder.
When building a home, these mortgages can be secured with as little as 5% down for the total build as long as the land is part of the total mortgage and at least 25% of the land is paid upfront no more down payment may be needed. The first draw on the construction mortgage is then used to pay off the land or pay out the mortgage on the land. The intent here is to ensure the person building the home owns the land (has title to it) before using the lender’s money to build a house. Construction continues until all draws are released. The end result is a single consolidated mortgage for the construction costs and the land.
Suppose you’ve found a piece of land for $100,000. Your dream home costs around $400,000. The total final mortgage for this deal will be $500,000.
The down payment for the land is $25,000 or 25%. That amount will eventually be rolled into the loan for $500,000, so you’re essentially putting 5% down for the total mortgage for both the land and the building. Consult with a Red Deer mortgage broker to understand how your deal would be set up and the money involved. Note that if you already own the land outright, you can take out a construction mortgage to build that dream $400,000 home, too. If there is no mortgage, then you’d only have to put 5% or so down for the home mortgage and the equity of your land can count towards the down payment meaning you do not have to put down any actual cash.
The draws would be advanced by your lawyer. Your Red Deer mortgage broker has to submit the draw schedules for each advance before that can happen. These requests trigger an inspection to verify that the work has been completed to that point. Then the lawyer can arrange for the funds to be advanced. Depending on the Red Deer mortgage lender, there may be three or four inspections. And you’ll have to pay an inspection fee for each inspection.
Professional builders are hired to complete the build. They will submit the price quote, project specifications and floor plans to the mortgage broker. Those documents accompany your application to the lender. Note that if the home you want to build is too unusual, the lender may reject it. A self-build refers to cases where the client or future home owner acts as the general contractor. These projects tend to be more complicated and time consuming, since you have to collect all of the quotes for subcontractors like plumbers, electricians, roofers and painters. Then you have to schedule when these contractors come onto the site, ensure the work is inspected, and everyone gets paid on time. If you want to get started call your trusted Red Deer Mortgage Brokers today 587-315-3525.