How to finance a new home build.
Looking to build your dream home? Not everyone wants to buy an existing house. Some people prefer to have a brand-new house constructed instead. The most well-known way to finance a build is through a construction mortgage, or draw mortgage.
The draw mortgage, which is generally used if you are building a home from scratch by yourself or with a builder, allows you to draw down on the full amount of the mortgage at predetermined stages of the home construction.
Most of the banks are quite similar in their approach to the construction mortgage where they require a 20 to 25% down payment on the cost of the home and proof that you own the land. The money is advanced in draws during construction with a schedule that shows you how far the home has to be built in order to access the money. In order to release a draw, banks send out an Inspector/appraiser to make sure that the work has been done as required and confirms for the bank the percentage complete using a fairly standard table such as in the example below (schedule varies a bit lender-to-lender).
Advance stages/Draw Schedule:
- Optional First Advance Prior to Construction: 65-70 % of equity of vacant land.
- 15 %: Excavation and Foundation complete
- 40%: Roof is on, building is weather protected (airtight, access secured)
- 65%: Plumbing and wiring started, drywall is completed, furnaces installed, exterior wall siding complete.
- 85%: Kitchen countertops completed, bathroom completed, interior doors installed.
- 100%: Construction is complete.
Once the construction is complete, the draw mortgage changes over to a normal mortgage or ends with a new one when you pay the existing construction mortgage off.
You'll have to buy the land separately or get a completely separate loan in order to purchase the land. As mentioned, you can have access to 65-70% of equity of your land which will part of the draw schedule.
Most banks require that you build with a licensed builder, which is registered with a new home warranty program or a certified general contractor that also carries similar insurance.
Ready to build your custom dream home in the Edmonton area? We will assist you in getting a construction mortgage to build your dream home. Contact us today! Edmonton Custom Home Builders will gladly prepare a free quote and answer any questions you may have regarding building your new modern home.