Thinking to build your own home? A construction mortgage helps borrowers to build their dream home by minimizing an initial cost while making the planning and repayment process easier.
Mortgage Specialist Heidi Hamano offers one stop service for a wide rage of mortgages.
Are you thinking to build your own home or a residential building up to four units? Securing a construction mortgage makes the planning and repayment process easier as you are only required to repay interest during a construction period (up to 18 months). At the end of the term, the construction mortgage is converted to a regular mortgage and you begin paying interest and principal.
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. The loan is dispensed in increments of four stages; first draw around 15% completion (insured only); if not insured the first stage is at 40% completion, the second stage is around 65% completion and the third stage is 85% completion and last stage 100% is described as the “foundation, lock up, drywall, and completion” stages.
The progress-draw mortgage is beneficial from a cash flow perspective, as the borrower pays interest only portions of the loan funded. An inspection is required throughout the building process to ensure that things are done properly in timely manner, and if the inspection is not approved, the borrower doesn’t get the next payment. You must consider additional expenses you may have to bear through the building process; such as initial deposit to a builder and inspections at different stages.