Many homebuyers in Mississauga choose a listing from a local realtor. However, some would rather have a custom home, all their own. If you fall into the latter category or simply want to build a house rather than buy a premade home, a construction mortgage in Mississauga might be for you.
As a leading mortgage broker in Ontario, StartMYPlan works with clients to help you realize your dream and find the financial support you need to put your plan in action. One of the ways we offer support is through information. Here, we have compiled a brief guide on home builder’s mortgages and what you need to know about them.
What is a construction mortgage?
In simple terms, a construction or home builder’s mortgage is a loan you receive from a lender to finance property and/or the materials and labour to put a home on that property. In some cases, your lot may need a separate loan but some lenders are open to combining the two if the borrower is eager and organized to build.
The mortgage allows you to build a home of your own rather than purchase an existing one. This includes:
- Exterior siding
As you secure a home buyer’s mortgage, you will work with a contractor to develop the home you have been dreaming of. Your contractor will give you a price point to work with and this is the amount you need to acquire to build.
There are two main types of construction mortgage in Mississauga. The first is a progress draw mortgage which gives the borrower access to funds as the project progresses. This means you receive money in installments, rather than a lump sum.
The other is called a completion mortgage. In the case of a completion mortgage, you have probably purchased an assembled house to put on your lot or paid for the construction of a house in full. The loan covers the entirety of the project, rather than each stage.
Working with a Lender
When you choose a construction mortgage in Mississauga you’ll find that the process is a little different from a traditional mortgage. You will have to work with your lender to ensure you meet loan expectations and are following each step correctly. In some cases, not following your lender’s guidelines explicitly, could lead to a termination of the mortgage.
Whether your lender is a traditional lending institution, like a bank, or a third-party financial service, receiving a builder’s mortgage takes more than a clean credit history. Due to the timely and costly nature of these custom projects, most lenders won’t get on board unless a borrower can prove their timeline for construction is realistic and achievable. Your lender may also request to see certification from your contractor to make sure they are able to follow through on your plans for construction.
The reason for all the fuss surrounding construction mortgages in Mississauga is that lenders are not guaranteed a finished project worth value if you default on your loan. If your home never gets built, for example, the bank loses money and is left with only a plot of land to try and recover its investment. For this reason, your down payment is generally larger for a construction mortgage than a standard mortgage.
Inspection of Your Property
As we mentioned, lenders get a little more involved with construction mortgages than they do standard loans. This leads them to follow-up on your property status regularly. This is especially true for borrowers who select a draw mortgage. Before each draw of financing, your lender will send someone to inspect the current level of completion. This normally happens at specified points set out by your agreement. It is common for an inspection to occur at 15, 40, 65, 85, and 100%.
It is important to note that the inspection of your home rests on your shoulders in terms of funding. This means you pay for the inspection, although it is requested by your lender.
It is important to explain that a construction loan is not normally a permanent financial solution. It is generally used short-term while building your home. Later, your loan may turn into a permanent loan or you will apply for a long-term mortgage through your lender.
Some construction mortgages in Mississauga require you to pay off the mortgage immediately following construction. It is crucial to go through the outline of your particular agreement carefully, so everybody is on the same page about the length of your loan and your repayment process.
Monitor Your Money
Finally, we have one last note, and tip, regarding your construction mortgage in Mississauga: be careful with your spending. Of course, nobody plans to run out of money while building a house but it happens. Sometimes it is due to poor planning. Other times it could be a problem with your contractor or supplier. Whatever the case, you want to take care that your funds don’t run dry before the end of your project.
Not only would it be problematic to be penniless in the middle of a house build but it could terminate your loan with the bank. Many banks are particular about the fact that at no point can anybody involved in the build run out of money between draws. Essentially, you get the agreed amount and you must stretch it until the next draw.
Contact StartMYPlan Today
Are you hoping to purchase a plot of land or begin building your dream home? StartMYPlan can help you get the best rate for your project. Our team of experienced brokers works with families across Mississauga to find financing for construction projects. We understand better than most what it takes to get a lender to consider your request and how to stay on track with your construction financing goals.
For more information on construction mortgages, call sMp Mortgages at 1-888-831-6716 or contact us here.