If you want to build your dream home, you need to consider what your new home construction financing options will be. With a preexisting home, financing normally involves applying for a mortgage and getting approved. Just like financing a preexisting home, you will need a down payment, and there are other things that take place, like a home inspection and closing processes.
With new home construction, the loan process is somewhat different during the construction phase. Once the home is finalized, the loan is normally converted into a conventional mortgage. You are essentially applying for financing for a home that is to be built in the near future.
As such, most traditional home lenders will not approve a mortgage for a new construction home. As a result, you have to come up with different means to secure the financing you require. One option is called a new construction loan.
This option is normally a form of short-term financing where you obtain the money to build the home. At the end of the loan period, the lender requires the loan to be paid in full. Fortunately, you can convert a construction loan into a conventional 15- to 30-year mortgage once the home is built.
During construction of the home, you authorize the lender to release funds to the builder at various stages of the project. Some builders and lenders refer to this as a progress draw mortgage.
For instance, at the site preparation and foundation pouring stage, the framing stage, the interior work stage, and the finishing stage are typical stages where money is released or drawn out. Keep in mind, this is just one example of how construction loan funds are distributed and the process could vary.
Another option is called a bridge loan. With this type of new construction loan, the lender uses your existing home as collateral for the funds you require to build your new home. This type of financing is also short term. Once the home is built, then you pay off the bridge loan by getting a conventional mortgage for your new home and using the proceeds from the sale of your existing home.
A third option which may be offered is builder financing. This is where the builder either offers financing to build the home or already has established relationships with various lenders. Essentially, the builder helps you obtain the financing through a mortgage company. Since you are going through the builder, getting approved for a new construction loan can be easier.
A fourth option is to use traditional financing to buy a recently built home. The home is still all-new, it’s just that the builder financed the costs of construction themselves. This option would be like buying any other home on the market for sale.
To learn more about different financing options to build your dream home in one of our new communities in Calgary and Airdrie, please feel free to contact Genesis Builders Group at (403) 265-8079 today!