17 Sep 6 Things to Know Before Applying a Construction Mortgage

Posted at 15:56h in construction loan in Abbotsford by

Planning to build your dream home? Want to apply a construction mortgage in Abbotsford? Securing a construction loan before you start to build a home can provide you the much needed financial support to bring your dream property to life. Unlike other mortgage types, construction one disburses funds throughout different phases of the construction phase. 

Before applying a construction loan, it is essential to understand the requirements you need to fulfill:

  • Detailed Construction Plan

Before applying and getting qualified for a construction loan, a homeowner must have a clear and concise construction plan in hand. This should include architectural drawings, construction cost estimates, completion schedules, and any approvals from local authorities. A well-defined and detailed construction plan not only helps in finding out how much mortgage you can apply, but also keep the lender informed about your plans.

  • Check Credit Score

A good credit score can help you find a mortgage deal at the lowest rate possible, whereas a bad credit score may result in high interest rates. When you apply a construction loan in Abbotsford, the lenders evaluate your credit worthiness using your credit score, financial stability, existing debts, and repayment history. Maintaining a good credit score can greatly influence your chances of getting approved for a construction loan.

  • Eligibility Criteria

When it comes to eligibility, it all depends on the lender. Each lender have a specific eligibility criteria that needs to be met to get approved for a mortgage. Some lenders consider factors such as age, income, employment stability, credit score, and property location to decide whether to release the funds to a borrower or not. Make sure you ask your lender about the eligibility criteria in advance to avoid any surprises later.

  • Loan-to-Value (LTV) Ratio

Loan-to-Value (LTV) ratio refers to the percentage of total construction cost financed by a lender. In majority of cases, the LTV ratio for residential construction mortgage generally ranges from 70% to 90%, depending on the lender’s eligibility criteria and lending policies. Once you know your LTV ratio, you can calculate the loan amount you are eligible for based on the LTV ratio and financial status.

  • Interest Rates and Fees

Before finalizing a construction mortgage deal, compare the interest rates you are receiving, processing fees, prepayment charges, and other expenses. By doing a market research with the help of a mortgage broker in Abbotsford, you can find the competitive interest rates, flexible repayment terms and favorable conditions to meet your mortgage approval needs. 

  • Documentation & Paperwork

Before applying for a residential or commercial construction loan in Abbotsford, make sure you have all of the paperwork in hand, including your proof of identity, permanent address, income statements for previous three years, property documents, construction estimates, and approved building designs accompanied with architectural drawing. An incomplete mortgage application with missing documents has a high risk of getting rejected.

So, these were some of the things you need to remember when planning to apply a construction loan. For more details, feel free to contact our experience mortgage broker in Abbotsford.

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