Are you interested in a construction mortgage? There are two types of construction mortgages that you can go for: completion construction mortgage and progress draw construction loan.
Completion construction mortgage
You should apply for this loan when you are purchasing your home from a qualified builder at a fixed price upon completion of the building.
There are two types of this loan:
All-in one construction loan: this is a simple loan that offers you a one rate for both the construction process and the financing that comes at the end. When you take this loan you need to repay it within one year. You should note that you have to pay a penalty if you go over the time limit.
Purchase plus improvement: this is the one that you get when you buy a home that needs to be taken good care of. The contractor needs to keep on making the improvements that you ask him/her to do and you should only accept the building once you are satisfied with the improvements.
Both of these construction loans have a number of features:
- The builder has to own the lot where the home is to be built
- The builder can request for money only when the home is 100% complete.
- The lender may require an appraisal before, during, and after the construction. This is to ensure that the home is worth the amount being mortgaged
- You need to make a down payment-which can be made in a series of installments
- Since the loan is almost similar to a resale property mortgage, the mortgage agent won’t require an administration fee in order to arrange this type of financing.
Before you are given the loan, you need to present a number of documents to the lender. The documents include:
- Copy of building contract that has been signed by you and the contractor
- House plan and working drawings
- Site plan that shows the legal description and dimension of the property
- An appraisal that indicates the final value of the home after construction
Progress draw construction loan
This is ideal when you are planning of construction your home using your own general contractor. You apply for funds at three different stages of the loan: when the building is 35-40%, 65-70% and 100% complete. You should note that the interest rates of this loan are higher than that of a traditional mortgage.
When applying for the loan you need to present a number of documents that include:
- Copy of land contract
- A resume confirming that you have good knowledge of the construction process
- Copy of all sub-contracts which confirm the construction costs.