Step 1 - Get pre-approved with a Construction Mortgage appointment!
We offer our complimentary Construction Mortgage appointment to help you understand the full construction process. We'll also review your financial and income information to give you confidence that you can afford and will qualify for the house you hope to build.
Step 2 - Find and purchase your land
Generally, you need a down payment of 35% to 50% of the purchase price when purchasing a 'raw land' lot, and these mortgages usually have slightly higher interest rates. Also, you will want to be prepared for the extra costs of the purchase, such as legal, broker, lender, and appraisal fees.
Step 3 - Pick your plans
Once you own the the lot, the next step is to find a builder you'd would like to work with, and then work with your builder and their (or your) house designer to select house plans that are appropriate for your lot. At this point you will be working with a rough costing for your build (usually based on $$/square foot), and will have an idea of any additional fees from your builder and designer.
Step 4 - Negotiate your Builder contract
Once you've picked your plan, you will negotiate your final finishing details with your builder and come up with a detailed budget. The 'finishing details' include topics like the types of flooring, heating system, kitchen quality and counter tops, number of wall paint colours, style of ceiling finish, roofing material, siding material(s), skylights, etc. Once agreed, your builder will provide you with a Spec. Sheet which outlines your budget allowances for each phase of construction based on the finishings. If you are looking to 'upgrade' any items, this is the time to negotiate these details with your builder. Changes made after this point will likely result in price increases and can cause extra challenges with the mortgage later on.
Step 5 - Negotiate your construction mortgage
With your builder contract and specification sheet in hand, we will then determine the best lender option and mortgage product to use for your plan. We will discuss all the fees (legal, broker, lender, and appraisal), and budgeting for the build as well as other details such as landscaping and purchasing appliances. Your construction mortgage lender will agree to a plan and an 'as complete' value based on the plans and spec. sheet, and will be ready to advance the funds needed in accordance with the builder's draw schedule.
Step 6 - Land Draw
If you used a mortgage to buy the raw land lot and we'll be proceeding with a different lender for the construction mortgage, the construction lender will do a 'Land Draw' advance to pay out the existing lender and become the only mortgage lender on title. There can be additional fees (penalties, appraisal, broker, lender, and legal fees) if this is required and the land draw of a construction mortgage is restricted to 65%-75% of the CURRENT market value of the land.
A land draw might also be used if you bought the property using your own cash (no mortgage) but you now need some of that money back in order to help with the construction costs.
Step 7 - Foundation (Optional draw) - 15% Completion
Once your excavation and foundation are complete, some lenders will allow a foundation draw of up to 15% of your total build cost. With this draw (and all draws discussed in future steps), an appraiser would be required to visit the site to confirm the work is complete. The appraiser will charge an inspection fee, and there is usually a draw fee charged by the lender as well. It is therefore usually best to try and minimize the number of draws you need to take throughout the construction process.
Step 8 - Lock up - 40% Completion
"Lock Up" is a common term used to describe the project reaching a point where framing is complete, sheathing is on, and external windows and doors are installed. This means the house shell can be secured at night (locked up). Most builders budgets will have a payment due at this point to pay for the framers and the window/door company. Once your appraiser has done the inspection, your lender will release a draw of up to 25% of your total build cost.
Step 9 - Drywall Up - 65% Completion
At this stage, your new home will be weather tight (roofing and siding/cladding complete) and have your plumbing, wiring and HVAC ducting (if needed) installed in the walls, insulation and vapour barrier finished, drywall/plaster complete, and furnace installed. Once your appraiser has visited and reported this level of completion to your lender will release a further 25% of your total build cost.
Step 10 - Cabinets and Interior Finishings - 85% Completion
When you reach this stage, your wall painting will be done, kitchen cabinets will be installed, the interior doors will be hung, and the bathrooms will be complete. At this stage your lender you will release up to another 20% of your total build cost.
Step 11 - Construction Complete - 100% Completion
The last set of jobs to reach construction complete include installing the plumbing and light fixtures, flooring, baseboard/casing trim details and door hardware. To be considered Construction Complete, the appraiser needs to confirm the construction project is 97% or more finished, and your builder must obtain your occupancy permit (issued from the city or municipal building inspector) and your New Home Warranty. At this last draw, you will be issued the remaining funds for your approved mortgage amount (less a possible Builder's Hold Back if construction isn't quite 100% complete).
Step 12 - Finishing Details
You're moving into your new home!
Did you budget for appliances or did your builder provide an appliance package?
How about landscaping? Are you going to take care of that yourself, was it negotiated for the builder to provide, or did we add in an allowance into the mortgage for a landscaping contract?
These are just some of the items that are often overlooked, that we can help ensure are taken care of properly well ahead of move in day.
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Questions?
As you can see, the process of building using a construction draw mortgage can be complicated.
Luckily, there are lots of ways we can help to ensure the process is as smooth as possible.
Please don't hesitate to contact us with your questions!