Construction Financing: Your Guide to Building Your Dream Home
Are you ready to build your dream home? One of the most important steps in the process is securing construction financing. This type of financing is different from a traditional mortgage and can seem daunting for first-time builders. However, with the right information and guidance, construction financing can be a smooth and stress-free experience.
First, it is important to understand the difference between construction financing and a traditional mortgage. A traditional mortgage is used to purchase an existing home, while construction financing is used to build a new home. Construction financing typically includes two phases: the construction phase and the permanent phase (take out). The construction phase covers the cost of building the home, while the permanent phase (take out) covers the cost of the mortgage once the home is completed.
When applying for construction financing, lenders will typically require a detailed construction plan and budget. This will include plans and specifications for the home, as well as a breakdown of the costs associated with building it. Lenders will also likely require a down payment, usually around 20% but in more chilling markets could be as high as 35% of the total project cost.
It is also important to consider the type of construction financing that is right for you. There are two main options: a construction loan and a construction-to-permanent loan. A construction loan is a short-term loan that is used to finance the building of the home. Once the home is completed, the loan must be paid off or refinanced into a permanent mortgage. A construction-to-permanent loan, on the other hand, combines the construction and permanent phases into one loan. This type of loan is typically more convenient, as it eliminates the need to refinance once the home is completed, however may have more stringent requirements during the construction process. This decision is one we spend a lot of time on with our clients.
Another important factor to consider is the builder. Lenders will typically require a professional and experienced builder to be involved in the construction process. It is important to choose a builder with a good reputation and a proven track record of successful projects and consider if Tarion Insurance is required - *noted below.
Overall, construction financing can be a complex process, but with the right information and guidance (our support), it can be a smooth and stress-free experience. By understanding the difference between construction financing and a traditional mortgage, considering the type of financing that is right for you, and working with a reputable builder, you can secure the financing you need to build your dream home.
If you're thinking about building your dream home and need help with the financing process, don't hesitate to reach out to Scott scott@thewestlaketeam.com for guidance and support. We will help you navigate the process and find the best financing options for your specific needs.
*Tarion Warranty Corporation is a non-profit organization that is responsible for administering the Ontario New Home Warranties Plan Act and protecting the rights of new home buyers in the province of Ontario. Tarion insurance is mandatory for all new homes built by registered builders in Ontario, including single-family homes, semi-detached homes, townhomes, and condominiums. The insurance covers various aspects of the home such as workmanship, materials and other issues that may arise during the first year of ownership. Tarion registration is required before the construction of the home can begin, and the builder must adhere to Tarion's standards and regulations throughout the building process.