Construction Mortgage Loans
Looking to build your dream home? Not everyone wants to buy an existing house. Some people prefer to have a brand new house constructed instead. If you’re wondering if there’s a mortgage for building a house, the answer is: Yes!
What is a construction mortgage (builder's mortgage)?
A construction mortgage allows you to draw down on the full amount of the mortgage at predetermined stages of the home construction. Let us explain.
Construction mortgages are given on a progress advance basis. The full amount that you need to borrow in order to complete your construction is given to you in stages – otherwise known as “draws” – as you complete various levels of completion.
If you already own the land you want to build on, a first advance is available as equity take-out. If you have not yet bought the land, a first advance is available to assist you with the purchase of a vacant lot.
Looking for a construction mortgage?
Advance stages/ draw schedule:
Below is common draw schedule used by lenders:
| Draw Stage | Required Building Completion | Construction Stage | % of Total Mortgage Amount Advanced |
|---|---|---|---|
| 1st Draw (Optional) | 15% complete | Excavation and foundation complete | 15% |
| 2nd Draw | 40% complete | Roof is on, the building is weather-protected (i.e. airtight, access secured) | 25% |
| 3rd Draw | 65% complete | Plumbing and wiring is started, plaster/ drywall is complete, furnace installed, exterior wall cladding complete, etc. | 25% |
| 4th Draw | 85% complete | Kitchen cupboards installed, bathroom completed, doors have been hung, etc. | 20% |
| 5th Draw | 100% complete | Ready for occupancy with seasonal and exterior work completed | 15% |
Important things to note
- Prior to each draw being advanced, an inspector will go to the property to ensure the builder is following the NHW (New Home Warranty) policies and to ensure each stage is completed with accuracy before releasing funds.
- The cost of the inspections falls on the borrower. Some banks deduct appraisal and progress inspection fees from each draw.
- After your mortgage is approved and signed, you will not able to change your mortgage amount to accommodate any upgrades or changes made to the home
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