BECAUSE IT IS GOOD TO KNOW
Is APPRAISAL required?
YES. Full appraisal is required showing current and completion value. Client is responsible to pay for it upfront.
Are BUILDING PERMITS already required when applying for a loan?
NO.
What is the TOTAL COST of the construction?
You should include the land cost, building costs, site preparation which include municipal services and finishing and “soft costs” – non-building costs such as interest, required permits, real estate/solicitor fees, etc. It is recommended that you set aside an additional 15% of the estimated costs to cover unexpected overruns
How DRAWS SCHEDULE works?
Draws will be issued based solely on percentage Complete Inspection Report.
Purchase finance - land only. Typically 50% - 65% financing of the land value.
• 1st draw - Roof Stage / Roof Tight – Approximately 35% complete. A survey is required by first draw.
* Sometimes lenders will allow a draw at around 15% completion once foundation has been completed.
• 2nd draw - Intermediate / Lock Up – Approximately 65% complete (prior to the drywall being installed). If acreage property, the well & septic is required at this stage.
• 3rd draw - Final Occupancy / Completion – Most lenders will not issue final advance unless home is 100% complete
What EQUITY ( down payment ) do I need to have?
Construction mortgages require more capital than your minimum 20% down because at each stage, the lender protects themselves and will only lend money based on the value of the home at that time, not the future value. It must be available at the time of application and you will be required to have additional resources available for cost overruns.
What FEES should I expect and when?
• NO UPFRONT fees except the Lawyer`s Standby Fee which accompany signed commitment
• Lender & Brokerage Bonus ( paid on closing )
• Legal Fees ( paid on closing )
• Appraisal Fee ( paid upfront directly to the appraiser )
• Inspection Fee per draw ( paid before draw advance )
When INSPECTION is required?
Satisfactory initial Inspection of the property by the Lender. Each draw requires a Progress Inspection Report, which details the percentage complete prior to the advancement of funds.
What INTEREST RATE can I get?
Marketable and Negotiable. Depends on applicant`s credit, loan amount, loan to value, security, registry position on a title, etc.
Where property can be located?
Any approved by lender location in GTA and surroundings
What is max LOAN AMOUNT?
Smaller amounts can be registered as a standard 2nd mortgage, no max limit on construction loan
What is max LOAN to VALUE?
Usually 65% of “completion value” with an option of increase at the end of construction
What is the SECURITY required?
1st or 2nd position on subject property or any other property with available equity
What is the monthly payment for the loan?
NO regular monthly payments require. Interest ONLY to be deducted from each draw as per outstanding balance
Can I PAY OFF the loan sooner?
YES. Construction mortgage is FULLY OPEN at any time without penalty
How do I qualify for a loan?
Construction mortgages are approved mainly on equity NOT credit or employment. Credit history and score may affect interest rate offered by the Lender
Do I need a SOLICITOR?
Progress Draw requires a Solicitor. Client is responsible to cover both his and Lender`s lawyer fees.
What is the TERM?
Usually 1 year from date of first advance
Is TITLE INSURANCE required?
YES
How LONG does it take to get construction money?
From the time of application to first draw advance it takes roughly 3 weeks. May be longer in some cases.
... AND NOW IT IS TIME TO BUILD!