Making Your Dream Home a Reality

If you’ve always dreamed of building a home that suited your needs and tastes perfectly, why not bring that dream to life?

Building your own home – or having it built to your specifications – can be challenging and more expensive than buying an existing home, but the end result can be more satisfying. First, however, you’ll need to be able to finance your fantasy abode, and the Wilson Team of Mortgage Professionals will be happy to guide you through the process.

Two Types of Construction Mortgage

It may be hard to imagine that a country like Canada, which isn’t densely populated, has two types of construction mortgages available: the, but it’s true. New homes are financed by the completion mortgage, the draw mortgage or a combination of the two.

Completion Mortgage

The completion mortgage is generally used in buying a home under construction by a builder and is paid once the home is completed or ready for the owner to occupy. You, the prospective owner, will likely still need to make a down payment on the home, as if you were purchasing an existing house, but your lender will generally allow you to pay it in instalments.

The completion mortgage is attractive because its terms don’t take effect until 30 days before the buyer takes possession. Therefore, you have the flexibility to make some changes, such as increasing the mortgage amount to cover additional upgrades you decide upon during construction. However, with a construction mortgage, you can’t deviate from the lender’s guidelines by making major life changes (e.g., switching jobs) or taking on additional major debts (e.g., car loan) or the mortgage could be revoked.

Not sure what you are referring to here? Just a regular builder mortgage?? (not construction draws?)

This type of mortgage is set up like a regular residential resale property with some differences. The first difference is that generally the closing dates are a lot longer than re-sale homes (resale homes usually within 4 months. New construction can be a couple of years out) When purchasing a home with a closing date that is far out, it is very important to ensure that you are not making any big life changes (employment, debts etc)

Most mortgage rates will be locked in 120 days before the occupancy of the property/final closing. This is generally outlined in your Tario agreement.

Draw Mortgage

The draw mortgage, also called a builder’s mortgage, is used by individuals who want to build their own home, using a contractor or acting as their own contractor. It is a mortgage whose funds are granted in instalments, or draws, during various stages of construction, until the home is complete or close to completion.

Lenders specify the requirements that must be met in order for the funds for each draw to be released and a home inspector must verify that they have, indeed, been accomplished. The prospective owner is responsible for financing the inspections throughout the draws.

There are generally three to five draws during construction, depending on the lender. Usually, there is an initial disbursement for insured mortgages once the excavation is complete and the foundation is poured; for other mortgages, it won’t happen until the roof is on and the interior is secure/airtight. Therefore, you’ll need to be prepared to finance the build yourself until it’s about 40 per cent complete.The other draws generally happen once the furnace is installed, the drywall is complete and the plumbing/wiring begun (65 per cent complete); when cupboards and bathrooms have been installed (85 per cent complete); and when the entire project is finished.

Some lenders will allow interest only payments until the interest adjustment date is reached OR until the construction is completed (whichever one comes first) when completing a “self build” which will help with cash flows through the project. Not to mention your 1st draw for the financing can be up to 80% of the LESSER of the purchase price or appraised value of the vacant land.

The funds available at each stage are determined by a formula, not by the money actually spent, so it’s important to know your budget and ensure that you stick to it. You MUST understand what funds are needed at each point along the way and keep them flowing, or the trades won’t be paid and the project will stop dead. Part of the mortgage approval process is demonstrating that you won’t run out of funds during the build. We at the Wilson Team of Mortgage Professionals can help you work out the funding in greater detail so you don’t get caught unaware.

Qualifying for Your Construction Mortgage

In addition to all the requirements you must meet for a traditional mortgage, there are extra requirements you must fulfil to buy a new home from a builder or build the home of your dreams. Any new home must conform to the local/provincial building codes and to the National Building Code of Canada. Your home must also be covered under an approved New Home Warranty program.

If you are purchasing a new home built by a builder using a completion mortgage, you’ll need:

For a new home being build by a builder using a draw mortgage, you’ll need:

  • A signed purchase agreement;
  • An offer to purchase the lot or the title to it;
  • A payment schedule that is co-ordinated with the mortgage draws;
  • The construction specs and plans and a spec sheet detailing finishes, trims, etc.; and
  • Your New Home Warranty registration number
  • An appraisal confirming the “as completed” value of the home being built in the location you are building it
  • If the construction is being completed by a licensed builder that builder must be registered with Tarion
  • If the build is being “sub contracted” by the owner to many contractors it is considered a “self build)

For your dream home, if it’s built by a contractor or a self-build, you’ll require:

  • An offer to purchase the lot or the title to it;
  • A copy of your building and development permit(s);
  • A copy of the ‘Course of Construction’ insurance coverage, which covers work in progress until completion;
  • The construction specs and plans and a spec sheet detailing finishes, trims, etc.;
  • For contractor builds, signed construction contract including construction cost estimates, completion schedule (by Stage), and payment timing expectations per stage, along with the builder/contractor’s risk insurance policy; and
  • For a self-build, a list of detailed cost estimates/quotes from various contractors, compiled into a worksheet showing the timelines, anticipated per cent complete, and anticipated completion date for each stage of construction, along with a resume from the applicant that details knowledge of construction, project management and industry contacts
  • An appraisal confirming the “as completed” value of the home being built in the location you are building it

Building your dream home may require more effort than buying one “off the shelf,” but the rewards are also great. Don’t let fear prevent you from achieving your dreams. We at the Wilson Team of Mortgage Professionals are here to guide you through the process.