Construction Mortgages Toronto
Construction Mortgages Toronto can give you the opportunity to make the home of your dreams a reality. Most people cannot afford to pay for a new home to be built from scratch and getting a mortgage for such a process can be tricky, since the security is based entirely on the idea of a completed home that doesn’t currently exist. This is where a construction loan comes in.
Construction loans are different from mortgages in a couple key ways. For one, they are usually short-term loans that allow you cover the costs of building the home. This is usually a set term of about a year, which should allow you and your builder to get the home completed. Once the construction process is completed, you will need a new loan to pay off the construction loan –sometimes called an “end loan”.
What this means for you is that you must refinance at the end of your construction loan and enter into a new loan of your choosing, which will usually be a traditional mortgage for your newly completed house.
Lenders are often apprehensive about construction loans for a variety of reason, a big one being the trust that needs to be placed in the builder. If your builder does a poor job or doesn’t complete the work, the bank may find them with a bad investment that isn’t worth as much as the loan. For this reason, most lenders insist that a qualified builder be involved. This would be a licensed general contractor with a good reputation and a history of building good quality homes. If you plan to act as your own general contractor to save money, you will find that lenders will be hard pressed to hand out money.
Another way the banks protect themselves with construction loans is by requiring detailed specifications of the home, including floor plans and materials that will be used. This allows the lender a better idea of what their money is funding and how much it will be worth. You will also need an appraiser to estimate the home value. They will use the blue book and the specs drawn up by the builder to make an educated estimate of the value of the home by comparing it to other similar homes in the neighbourhood.
Finally, a construction loan will also need a hefty down payment, usually to the tune of 20% or more. This assures the lender that you are invested in the project and won’t disappear if the build goes wrong. It also helps protect the bank’s investment if the home ends up worth a lot less than they estimated.
If you’re ready to look into building a one of a kind home, we encourage you to contact us a Group Mortgage Solutions so we can discuss your options for a construction loan.