Buyers familiar with mortgage applications for pre-existing properties may find the process of financing custom constructions surprisingly complex – even daunting.
While certainly more involved, the experience need not be intimidating. With a basic grasp of the steps to expect, buyers can move forward with confidence.
A buyer’s ultimate approval depends on a variety of considerations not applicable to standard mortgage scenarios. In addition to the verification of income, liabilities, and cash available to complete the build, lenders may wish to review the following:
– Architectural Plans and Building Specifications
– General Property Details
– Construction Agreement with the Builder
– Construction Budget from the Builder
Downpayment requirements will differ between lenders; however, typical minimums may be 25% of the total project cost, or full cost of land acquisition. Often, lenders require reserve funds to be available for soft costs such as property taxes, municipal permits, architectural and engineering fees, Realtor and Lawyer fees, appraisals, and inspections.
Upon successful approval, funds are generally advanced in multiple stages (known as “draws”) throughout the construction process. The number of draws will vary from lender to lender, although 3 – 5 is considered standard. At the completion of each stage, it is common for inspections to be conducted prior to advancing funds for the next.
A sample 3-stage construction draw for a a Calgary infill may be dispensed as follows:
Advance #1 – Rough-In Stage: Foundation is poured, framing (incl. sheathing and roof) is completed, electrical and plumbing are roughed-in. [Approximately 35% complete.]
Advance #2 – Drywall Stage: Exterior finish is completed, basement floor is poured, and heating source is installed. [Approximately 65% complete.]
Advance #3 – Completion Stage: Finished doors, floors, carpentry, painting, heating, plumbing and electrical. Walks and driveways are poured. The house qualifies for an occupancy permit, and is effectively considered completed. [100%]
Here, the difference between buying a finished home and building from scratch becomes clear – and, as any New Infill owner knows, nothing but custom compares.