A construction mortgage is a mortgage where funds are released at 3 to 4 different stages as the house is being constructed. Construction mortgages have a higher risk associated with them, as the lender is lending against the house which is under construction. It is difficult for the lenders to get their money back if things don’t go as planned. The lenders expect you to use your funds to complete the every construction stage with your own funds and then lenders release the funds when stage is completed. An appraisal by certified appraiser is required for each draw in which an inspection report will detail the percentage completion.
Draws Schedule for the Construction Mortgage1st Draw to assist with purchase of lot (land) or take equity out of lot you already purchased. Normally about 50% value of the lot. 2nd Draw at 35% of the construction complete, at lock up – windows, doors installed and completed roof. 3rd Draw at 65% of the construction complete, dry wall installed taped and finished. 4th Draw at least 97% complete or Final Occupancy
Types of construction mortgage Financing
- Using a Builder/Contractor:You have entered into an arrangement with the registered builder to build your house. Builder is using your construction mortgage financing to build your house.
- Building yourself:You are your own contractor and hire the sub-contractor or trades man to do the construction for you.