Construction Mortgage Toronto

Constructing your own home is exciting and one that many Toronto residents are undertaking. Why live in a home designed and built for another family with a different lifestyle when you can customize a home to your lifestyle?

So you got yourself into home construction, what are your options in terms of a mortgage? At Certified Mortgage Brokers we offer a number of different options for a construction mortgage. Whether you are a builder yourself, employing a contractor for building, or are a buyer of a new home there are unique solutions available for you. Building a custom home is a popular trend in Canada at the moment because it allows to include all the features and designs that reflect your personal tastes. Such projects require sufficient financing and preparation, however.

Construction financing, when done properly, is a quick and efficient process. As a builder there are a number of documents that you need to obtain and provide. Examples include: building plans, specifications, proof of down payment, fire certificate and more. Our specialists will make sure that you are not missing anything that is needed and will save you many on the processes.

Qualifying for construction mortgage sometimes called a self-build mortgage is very different to qualifying for finance on an existing property. Mortgage providers will require a lot more information from you and you will have to make a bigger down payment on the property than on an existing home. This is typically anything from 25% to 30%.

When planning to construct your own home, you’ll have to work with the contractor to produce drawings, timelines and cost estimates before you approach the financial institution to seek funds.

Most lenders will want assurances that the construction will be completed in a certain timeframe. They may want proof that the builder is certified and has a portfolio of previously well-built homes.

Toronto financial institutions deem the mortgage risk of construction to be greater than that on an existing home and for this reason, they will finance the construction as it reaches various stages and will not part with the full funding until the construction is complete.

The institution will require

• Proof of income
• Credit history
• Building plans and estimates

In Canada, there are two types of construction mortgage available, a process-draw mortgage and a completion mortgage. If you have a completion mortgage transfer of the money will only take place upon completion of the construction or when you take occupation.
Because the funds are transferred on completion you can usually make changes to the mortgage up to thirty days before you take possession. This gives you the flexibility to ask for additional amounts if there are overruns.

On the other hand, during the completion time, your life’s circumstances could change and you may not qualify for the mortgage that you did when you applied.
The progress draw is typically paid out as the construction progresses, with payments made at 35%, 65% and 100% completion. For the lender, the progress draw mortgage is much riskier. The incomplete building is collateral on the loan. In the event of default, the lender could have an incomplete home that may not cover the full amount of the loan.

There are three types of construction.

• Self-built
• Contractor built
• Purchase of a newly constructed home – a great option for those who want a new home but don’t want to go through planning and construction

The first two will qualify for progress draws or completion mortgage, the last will require a completion mortgage.
Because of its complexity, it is best to consult a mortgage broker before applying for a construction mortgage. The expert consultants at Certified Mortgage Brokers Toronto can help you every step of the way.