Construction Mortgage – Funding Your Dream Home

Have you ever said that you would build your home differently if you had the proper opportunity to?  Building a new home is a dreamy idea for many families and a chance to customize every aspect of the home to create the ideal living space.  As you embark on this opportunity, one major component to plan will be a financing solution for the new home build and here’s where a construction mortgage can help turn that dreamy idea into a reality.

How does a Construction Mortgage work?

A construction mortgage is the ideal financing setup for those looking to build a brand new home (or plan a major renovation) as a customized financing solution will fund the project in various stages of the home build (otherwise know as an advance).  This advance is granted once the building process hits certain levels (progress).  For example, you may get your very first advance when you pour the foundation and the next when you install the roof.

What are the home building stages to qualify for the next stage of funding?

Typically, there are five stages for the home building progress where funding can be advanced.  Let’s take a quick look at these five levels of the home construction process:

Advance #1:  In the early stages, when you have broken ground and poured the foundation you would should qualify for the first draw which is 20 percent of the total construction mortgage amount.  The actual work completed at this level should be equivalent to 15 percent of the overall project progress.

Advance #2:  At this next stage a little more work needs to be completed to get to the rate of 40 percent of the overall construction progress.  At this point the home should be protected with weather barrier and the roof should be installed.  Once this has been completed, another 25 percent of the construction mortgage amount will be released.

Advance #3:  At this point, there’s a lot more activity and tradespeople around the project.  To qualify for the third draw, 65 percent of the construction should be completed.  This would include key items such as drywall, electrical wiring, plumbing, having your furnace in place and other similar details completed.  Once these criteria are met, another 25 percent of the construction loan money can be advanced.

Advance #4:  By this time, the exterior doors should be installed, bathrooms should be ready and the kitchen cabinets be fully installed.  This should bring the overall home construction of 85 percent completed status and once confirmed, another 20 percent of the construction loan money will be advanced.

Advance #5:   The final stretch!  The home is in the final stretch before it is fully ready for move in.  Only minor work or finishing should remain in this stretch to qualify for the remaining 15 percent of the home construction mortgage amount.

This is just a quick high level overview of how construction loans or construction mortgages in Metro Vancouver work.  There could be other fees and inspection expenses along the way which I’d be happy to discuss in detail when planning your own customized funding solution.  Not all banks are eager to take on construction mortgage customers as they present more risk for the lender.  By working with a mortgage broker with access to multiple funders in Canada competing for new customers, you may just be on your path to realizing that dream of building your own home with a competitively priced funding solution.  I invite you to connect with me at anytime to explore the latest in home construction loans.

All the best,

Sukh Sangha