Home Construction Loan
“Considerations For Securing A Home Construction Loan”
If you are looking to build a residential home for your own use, here are a number of things to consider before signing up for any home construction loan offer.
For the most part, a home construction loan is either acquired by an individual that his paying a builder for a turn key finished product where the property owner does not play an active role in the management of the construction project, or property owner is orchestrating a self build construction project whereby the owner will serve as the general contractor and coordinate the sub trades and all other elements of the build.
In either case, a home construction loan can be obtained by the property owner, but in the case of self build construction, the lender may want to see more evidence of the owner’s experience and ability to successfully manage a home construction project.
A home construction loan can be obtained from both bank and private mortgage lenders. There are benefits to both types of lenders that can cause you to select one over the other, even if you qualify for both.
For the most part, a bank or institutional lender will only provide a home construction loan as a first mortgage against the property where construction is taking place, requiring the builder or property owner to have 100% paid in ownership of the land in question. With a private mortgage lender, a home construction loan can be placed in a second mortgage position, provided that there is sufficient equity in the property and project to protect the private lender’s risk.
Regardless of the source of a home construction loan, there are typically three draws set out to advance the construction financing. The first draw is usually advanced once the building is closed in with roof, windows, and doors in place.
The second draw will normally take place once the dry wall stage is complete which will also encompass the completion of the wiring, plumbing, and heating systems being installed as well.
The third draw will be advanced at or near completion of the remaining work.
For larger homes, the building process can take a lot longer to complete, so there can be additional draws added to the project schedule to better manage the timing required to pay for materials and trades.
Before you start applying for a home construction loan, you should first put together a solid budget for the project as well as a timeline for completion that outlines when all the work elements will be completed. You should also have a set of professionally prepared plans and drawings completed to provide greater support for your construction financing request.
If you are planning a home construction project, or are in the middle of one and require a home construction loan, I suggest that you give me a call so I can quickly assess your requirements and provide home construction loan options for your consideration.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel