Mortgage 101: Understanding Construction Mortgages

While standard mortgages are based on the current value of a property, construction mortgages are based on the future value of the property. This future value is based on the future value of the property. This future value is based on blueprints that are appraised, market value, and the future locations the home will be built.

Once the home is built, the construction mortgage will become a standard mortgage with the fixed-term rate you locked in when applied. The funds for your home will be given in different stages. This means that funds are released as construction milestones are reached such as the completion of the foundation, framing, and roofing.

In order to qualify for a construction mortgage, you will need a detailed plan of the project. This includes blueprints, construction timelines, a builder, and budgets for materials and labour. You will also require a minimum down payment for your home once the final price is determined.

Because construction mortgages can be considered a higher risk, the interest rate may be higher. That interest rate will be locked in at the state of construction and at the time your loan closes.

A construction mortgage is a great option for those who are planning to build their dream home. Since the funds will be released in phases, it will help you save on interest costs. While they have their benefits, the application process is more complicated than a traditional mortgage and requires more paperwork and planning. Working with a supportive and understanding lender and a reputable builder will be the key to ensuring your project goes smoothly. Meeting with an advisor is your first step to begin your journey.