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Want a Custom Home Build? Here’s How to Finance it:

Want a Custom Home Build? Here’s How to Finance it:


Have you always dreamed of building your own custom home or cottage exactly the way you want it? You’re not alone! Perhaps you’ve found the perfect plot of land or you’re on the hunt for something super unique…all you need now is the financing. Don’t despair – there is a mortgage you can get for your custom home construction. Here are the basics to get you started:

Construction/draw mortgage

Mortgages for new/custom home construction are different from traditional home purchase mortgages. The most popular mortgage is a construction mortgage, (also called a builders, ‘process-draw, or ‘draw’ mortgage), where you are advanced your mortgage money in various stages of the construction. In other words, your lender will release a percentage of your total mortgage amount in installments, depending on how the custom home build is progressing. For example, there may be 4 or 5 clearly-defined construction stages where a lender will release payments, such as once the foundation is complete, then another when the framing/roof is done, then again after the electrical and plumbing is installed, and so on. The final payment usually comes when the home is move-in ready.

Keep in mind that the lender will send an inspector to verify that the building is progressing to the proper standards at each stage, and that additional fees may be needed to cover each inspections. Also, draw mortgages are rarely flexible once they are established, so if you go over budget, you will need another source of income to finance that. With this type of mortgage, you will likely still need a down-payment or deposit to get started, but in many cases it can be as low as 5%.

Completion mortgage

Another type of mortgage for a custom home build is called a completion mortgage. While not as common as a draw mortgage, this can come in handy when you have a builder (usually a larger construction/building company as opposed to private contractor) who only needs the funds upon completion of the home. As the name implies, the bulk of the funds are released when the home is finished and has passed a final inspection. The builder or lender may require a down-payment.

Important tips:

While the benefits of having a home built to your exact needs, wants, and wishes is definitely exciting, there are a few extra things to keep in mind when it comes to the financing:

  • You’ll need to meet specific qualifications in order to be approved. Like any mortgage loan application, you’ll need to provide proof of income, assets, credit history and so on. You’ll also need to have professional blueprints drawn up and all building/by-law permits approved.
  • You can be approved for a construction mortgage even if you don’t own the lot yet. The price of the lot can be added in to the total mortgage loan, but ideally, it will cost you less in interest payments if you already own the lot.
  • You need a back-up plan. As is typical with new home construction, there are usually delays, setbacks, and cost over-runs, so you’ll need to be able to sustain yourself financially during the entire construction period – which can go well beyond a year or two depending on the situation.

If you’ve been thinking about finally getting that custom, dream home you’ve always wanted, talk to me today! As an accredited, certified mortgage broker who’s experienced in all types of mortgages, it’s my job to first make sure you’re qualified for home-construction financing. Based on your specific needs, I’ll then refer you to one of many reputable lenders I work with who specialize in this type of mortgage and help make sure you get financing that works for you – at the best rates possible. Give me a call today at (705) 315-0516 and let’s set up an appointment – so you can get building!

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