Building your dream home? We can help..
Our construction financing packages start with as little as a 25% down payment to begin the construction financing process. It all starts with a dream and a budget.
The most critical component of the construction financing project would be your budget which should include land, hard and soft costs. Hard costs include expenses such as demolition, excavation, framing, roofing, electrical, plumbing, heating, drywall, windows, driveway, appliances etc. The soft costs include expenses such as building permits, design, engineering reports, legal fees, new home warranty, water/sewer hookups, lender fees, appraisal fees etc. It is also recommended that soft costs include financing costs, new home warranty, and cost overruns to avoid a shortage of cash to complete the project at the end.
To calculate the maximum loan amount, most lenders will consider lending up to a maximum of 75% of the total costs including land in most urban centres. A good rule of thumb will be as follows:
If purchasing a plot of land for $200,000 and total hard and soft costs for construction will be $400,000, then the total costs including land will be $600,000. Most lenders will finance up to 75% of $600,000 = $450,000 (loan amount). The borrower will be required to put the difference of $150,000 to make up the purchase price. The construction loan or mortgage will be advanced in several stages, starting with the initial advance to help cover the difference in the land purchase, interest reserve, lender/broker/legal fees etc. Most lenders collect an interest reserve to cover the interest payments for the first 9 months during the construction process.
At each stage of the construction advance, the lender will request an appraisal to confirm that the work has been completed and as per the construction schedule. Once the building is close to completion, the final appraisal will be required at which point the borrower has the option to sell or refinance into a regular mortgage term should they wish. It is recommended that the new home has a New Home Warranty for resale value. Contact Us to learn more.