Construction Mortgages

Home Construction MortgageThe construction mortgage is a financing option for clients who want to build or do large renovations to a property both residential and commercial. The construction mortgage steps into the picture to make construction and land development faster and easier.

The construction work has got to be completed in the specified phases that the lender has set out in the financing contract.
Unlike regular mortgages, the construction mortgage funds are released as the work is completed. This is called a progress draw. Loosely translated, it means that as each construction phase is completed, (usually up to a maximum of 4 draws) then the lending institution releases the money. This has numerous benefits as opposed to the one time monetary release in that it keeps the construction company in check because these funds cannot be used for anything else especially if the project ought to be completed by a certain time. The other benefit to having the money released in stages is that the pace of construction has got to be consistent.

The fact that the money is released on the completion of each phase means that the work has got to be 100% complete which works to the borrowers favour. As each stage is complete an inspector from the lender will visit the property to make sure the phase is 100% complete before the money/draw is released.

Not all banks or lenders offer construction financing. Therefore consulting with a Toronto Mortgage Broker will be advantages to the client. A client building a new home can obtain construction financing for as high as 95% of the constructed value.

The process and steps involved in putting the mortgage financing together for construction financing takes allot longer than regular mortgage financing and the client needs to be prepared for this. Up front constructions cost, permits, drawings etc are mandatory before the lender will adjudicate the mortgage. Once approved the lender will release the first draw after the first stage of the construction is complete. The first stage completion usually means having the property air tight i.e. all walls, roof and windows installed.