Build your dream home? Consider a construction mortgage.

Imagine walking into a home with all your favourite features. It’s had no previous owners; it rests on a lot that is just the right size; and it has no resemblance to other homes in your neighbourhood. That is the dream vision of many new homebuyers.

Some people consider a dream home out of reach. They assume they don’t have the money to build the perfect home from the ground up. That is where a construction mortgage can help. If you are looking for a construction mortgage in Newfoundland, call the professionals at The Mortgage Centre today.

Comparing Construction Mortgages to Traditional Mortgages

For homebuyers who want to live in a custom home built to match their needs and preferences, a construction mortgage offers a financing option to make that dream a reality. A construction mortgage differs from a traditional mortgage in several ways:

1. Who pays for construction costs? In a traditional mortgage, the homebuyer obtains a loan for the sale price of a completed home. That’s true both for a previously owned home or a new home. When you build your dream home, you are responsible for the construction costs. A construction mortgage lends you money to pay those costs, and you only pay interest on that amount until the house is complete.

2. How borrowed money is distributed. With a traditional mortgage, the lender pays the entire amount of the loan at once to whoever owns the house (usually the previous owner or another lender). However, a construction mortgage releases money to pay for construction costs in phases. The lender and the borrower determine those phases based on the predicted homebuilding schedule and the actual progress of construction.

3. What happens when construction is finished? For most new construction, buyers and mortgages usually don’t enter the picture until construction is complete (or near completion). That’s when the buyers apply for a traditional mortgage, and the lenders pay the builders (or whomever financed the build) the full price of construction. For homebuyers building a custom home, a traditional mortgage also kicks in when construction is complete. However, that full mortgage value includes the home’s value and the costs of construction.

Planning Your Dream Home Before You Apply for a Construction Mortgage

Before you meet with a construction mortgage broker, you should have completed a few steps in the planning process. Start your homebuilding process with these steps:

1. Decide what you want. This is your dream home, so you get to make the decisions and approve the designs on every level. Before you meet with an architect or a contractor, you should know what you want.Make a list of your must-haves, the features you have always envisioned in your dream home. At this stage, think big picture for the most part. You should focus on lot size, location, square footage, number of rooms and overall look. Later on you can get specific with top-of-the-line appliances, trendy paint colours and other end-stage design considerations.

2. Line up your team. With your must-have list ready, you can look for an architect and contractor to complete the design and build of your home. We recommend having these professionals on board before you buy a lot. Their expertise can be invaluable as you evaluate potential locations for your dream home.You may also want to bring in the interior design team early in the process. Together with the architect and contractor, they will be able to envision your home in its completed stage.

3. Set a budget. With your team in place, it’s time to talk numbers. Know what you can afford to pay going in, and trust the cost estimates from your architect, contractor and interior designer. You may be able to cut costs a little here and there, but you will probably also encounter some unexpected costs. A realistic budget helps you prepare for both eventualities.

4. Talk timeline. During the planning phase, many soon-to-be custom homeowners get caught up in a vision of their new home. This excitement can make it hard for them to be realistic about a timeline.

In reality, custom homes have above-average building timelines, thanks to the many details and special features. Creating the plans alone can take 3-6 months. From there, a 3,000 square foot home typically takes 6-9 months to build. A larger home could take a year or longer.

A trustworthy timeline is also important before you apply for your construction mortgage. Your lender will need solid estimates about each phase of construction before finalizing your loan. That timeline allows the lender to determine when to pay out additional construction funding.

Prepare to Enjoy Your Dream Home

Have you caught the vision? If reading this blog gets you excited about your prospective dream home, it’s time to start planning for it. Consult a mortgage broker in St. John’s Newfoundland about your options for a construction mortgage and bring that dream one step closer to fruition.