Construction Mortgage: An Overview

1. Construction Mortgage: An Overview To save large sums of money and design their dream homes, many individuals choose to construct their home from the ground up. While building a home, one needs to consider the source of finance for such a large project. One loan option that a majority of individuals opt for is the “construction mortgage.” A construction mortgage is basically a loan that is availed to finance building your own house. The money is generally handed over to the borrower in predetermined set amounts while each stage of the process of construction is effectively completed. A majority of construction mortgages involve payment of only the interest amount during the period of construction, with full repayment being the norm only when the homeowner obtains an occupancy certificate. When it comes to construction mortgage Winnipeg, lenders need to know all elements that will be involved in constructing the home prior to sanctioning the loan. This often includes the blueprint of the home, raw materials used, labor utilized, other expenses related to the construction, and the time needed to build the home. Construction mortgages are generally variable-rate loans that are eventually priced based on the prime rate. The homebuilder, contractor, and lender will set schedules for fund withdrawals at every stage of the process of construction. Interest is levied on sum of money that is withdrawn. Getting the money released prior to completion of each stage is beneficial economically, while helping to prevent problems related to future funding. A majority of homeowners generally make a choice for acquiring a construction-to- permanent plan of financing, where the construction loan is swapped to a mortgage loan after an occupancy certificate is handed out. Homeowners may often obtain a higher construction loan rate and then obtain an enhanced mortgage rate after switching to traditional financing. It is vital to keep in mind that when it comes to loans with a variable rate, repayments may fluctuate every month. Most often, construction mortgage rates are quoted on a prime-plus basis. Similar to a traditional mortgage, the amount you are allowed to borrow depends on your financial status, including your income and credit rating. Lending can range from 75% to 95% of the cost of the building. Certain lenders provide an exclusive loan for purchasing the land. Funding for construction costs is generally released after the home building plan has been effectively approved. The greatest benefit of a construction mortgage is that it is more affordable than obtaining a mortgage for an existing home. The loans can be availed with the help of a mortgage broker Winnipeg.