A Brief Guide To Construction Mortgage For Property Owners

Are you planning to build a new home? You can keep more money each month by using home construction mortgage to pay for the building expenses of your property while it is being developed. When building on land you own or will buy, many financing institutions require you to have a builder or general contractor approved by the bank.

A construction mortgage in Abbotsford for home building will pay for:

  • approving building supplies
  • construction work
  • filing permits
  • final touches

At pre-arranged phases, your builder will require a schedule of disbursements. Before the funds are released, work in progress must be approved by a house inspector who has been approved by the bank. When payments are due, funds must be available, and the construction loan helps with that.

Because there isn’t an existing house to utilize as collateral in the event of a payment default or if the builder goes out of business and doesn’t finish the job, home construction loans are seen as a little riskier than standard mortgages.  

Following agreement on all details, a draft schedule detailing the completion dates of each step is created by the lender and builder. The bank will be able to approve payment to the builder once the appraiser certifies that each step has been finished. 

If there is no need for private mortgage insurance throughout the build, the borrower will only be assessed interest on the money disbursed during the first year. Following the completion of the 12-month construction period, the loan will automatically convert to principle and interest repayment.

How to Get Approved for a Construction Mortgage

In addition to a credit check, a manageable debt-to-income ratio, consistent income, etc., requirements for construction loans include:

  • Prepare the supplies list and floor plan for your loan officer.
  • Have a contract with your builder that specifies the total cost and the anticipated time frame for the project.
  • To determine the final property value, we assess the building plan. This allows us to decide on a loan amount of 80% of the appraised value, or 95% with private mortgage insurance.

You are locked into the rate for a one-close construction loan on the day you apply. After a year, the loan automatically switches to principle and interest payments. At least 30 days following the closing period is when you would make principle and interest payments if private mortgage insurance is needed.

Get Your Construction Mortgage Approved With Satbir Bhullar

Satbir Bhullar is your local construction mortgage broker in Abbotsford, assisting property owners in getting approved for a competitive mortgage deal. With a network of trusted lenders, I can secure you the best deal at the lowest rate. If you are considering building a new home and would like to discuss your options with a professional broker, contact us today.