Construction Mortgage Loans Saskatoon, Saskatchewan
Saskatoon's Top Mortgage Broker
Should you decide to build a new home there are two ways to finance the build.
- Find a builder that requires a deposit to build. Once the build is complete and ready for occupancy, they receive the remainder of the money
- Construction Mortgage – there are two parts to the construction mortgage – the progress draw term and the end/completion mortgage. The draw term is the construction phase of the build with the end/completion mortgage the final mortgage when it is ready for occupancy.
What is a construction mortgage?
There are a few other names and terminology that is used when it comes to construction mortgages…draw mortgage, progress draw mortgage, builder’s mortgage….they are all one in the same.
I will always refer to it as a construction mortgage. This type of mortgage allows you to draw down on the full amount of the mortgage. Depending on the type of mortgage (insured or uninsured) lender/insurer, it could be at predetermined stages of the home construction or when requested.
Construction mortgages are advanced in stages based on percentage complete. The advances are known as draws.
Based on qualifying, it is possible to do a construction mortgage with 5% down payment. If you own the land, the equity in the land can be used as the down payment or a portion of the value of the land can be used as the down payment.
Common Draw Schedule (for insured deals)
1st Draw - 15% complete - Excavation and foundation complete (backfill complete)
2nd Draw - 35-40% complete - Lock up (roof, doors, windows are in)
3rd Draw - 75-85% complete - Paint Ready (plumbing, wiring, drywall, furnace installed)
4th Draw - 100% complete - Ready for occupancy
- some lenders will allow more draws if requested
- percentage complete is determined by an inspector (appraiser). If the mortgage is insured, the cost of the inspector is paid by the insurer (up to 4 inspections). If the mortgage is uninsured, usually the client pays for the inspections
What is the process to receive the draws?
Based on the percentage complete (as per the inspector), the advance is calculated. The lender will then disburse to your lawyer the amount of the advance. Typically the lawyer will then pay the builder on your behalf (less a builder’s lien hold back as required by law). The lender does not deal with your builder at any time, only with your lawyer.
Details - Very Important Note
- Funds are not advanced to pay for things; only advanced based on percentage complete
- Understand your cashflow – it is important to have access to extra cash as the build is being done should the % complete not match the funds required to keep moving forward. It is important to understand the timing and amount of the draws. If there is a shortage between what has been paid for and what the % complete designates is available for the draw, then the extra funds will need to come from the borrower, so it is always a good idea to have access to extra cash that can be used while you build. Upon completion of the build (as long as you do not go over budget), the extra cash used should be reimpursed by the mortgage that will be in place.
- Most lenders will require a new home warranty
Different Ways To Build With A Construction Mortgage
- Residential Home Builder
- Could require a deposit, then will build with a completion mortgage
- Could require a construction mortgage
- Contractor/Self Build
- Will need to prove experience
- Will need to ensure that the cashflow is there for this type of build. Typically the builder wants to be paid for the pre-built before it leaves the lot. Lender will not advance until it has been moved to the lot and is ready for occupancy. There is a specific timeline that has to be met.
If you are interested in building, please reach out to me and I will help you through the process.