Building vs. Buying a Home
Wooden frame of a new house under construction
Many homebuyers will choose to build their own home as it allows them to craft their dream home according to their exact desires, while remaining in their specific budget. One downfall to building your own unique home is that if you choose to sell the home in the future, you must keep in mind market standards and general tastes of future homebuyers. Consulting with designers before signing off on the home’s design is the best way to ensure your home will be marketable in the future.
Buying a home is great if you want to avoid the hassle of the building process and hiring contractors, however there can be many other hassles down the line if you are unable to uncover them before purchasing. For instance, some homes may have hidden issues such as asbestos or faulty appliances that will cost you time and money down the line to fix. Building your own home ensures the appliances and home structure are new.
Understanding the Financing Process
The most common mortgage type for self-build homes is the progress draw mortgage, which involves the lender providing certain amounts of the financing at various times during the build process. Financing contracts will stipulate certain percentages of the original loan amount to be paid at various levels of construction completion. Upon completion, the outstanding balance of the mortgage will be paid to the homebuyer and all money left owing will make up the conventional mortgage on the home.
To acquire this type of financing, you need to obtain the proper planning for your build, including hiring a qualified contractor, obtaining the architectural drawings of the home, and details of the exterior and interior design characteristics of the home. These must all be provided to an appraiser, who will provide an estimated value of the home. The contractor will also provide a quote for the construction costs, which will include a draw schedule that should mimic the draw schedule you receive through your progress draw mortgage.
Beware that construction financing is based on the lesser of the market value of the home and the construction costs. If the cost of the build exceeds the home’s estimated market value, you may not be able cover the entire home construction with a mortgage alone and may need upfront cash.
Note that interest rates for construction loans will be higher than traditional mortgages, however the rate will lower once the outstanding construction loan is factored into the home’s conventional mortgage.
Raising the right financing can be difficult, and if done incorrectly, can cause you serious financial hardship. Gerard can assist you in finding the best financing option for your specific situation.
To Download our White Paper on New Home Construction or for further information on Construction Mortgages, visit our services page on New Home Construction.
Gerard Buckley, Mortgage Agent at Mortgage Wellness, has offices is in Collingwood, Owen Sound and Toronto with access to over 80 specialized lenders.
Please Call Gerard at 866-496-4028 for a complimentary consultation.