Construction Mortgage Loans Mississauga & Oakville
Are you thinking about building your new home or office from the ground up?
If so, then you should be prepared for a different application process than that of a traditional mortgage or loan. When securing the finances for an upcoming building project, you must apply for a construction loan, which can be a long and confusing process.
Types of Construction Loans
Construction financing is a high-interest, short-term loan used to finance the construction costs of property building projects. Two main types of construction financing are currently used to fund real-estate construction.
There are two types of construction loans that are available:
- Completion Mortgage
- Drawn Mortgage
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A completion mortgage doesn’t require the borrower to pay the lender until construction is complete and they have access to the finished property.
With this option, you are not required to make any payments until you are given possession of the newly built property. Similarly, if you would like to upgrade or change the terms of your mortgage you are free to do so until 30 days before you gain access.
A draw mortgage gives the borrower access to parts of the loan amount in increments throughout the building process. The first portion is optional when the project is 15% done. The second portion of the loan is given when the property is approximately 40% complete. The third portion is given when the property is approximately 65% complete, and the fourth portion of the funds is provided when the property is approximately 85% complete. The final amount is funded once the project is finalized.
This option is beneficial because it allows the borrower to finance the construction upfront without having to worry about how to fund the building process. It also helps the builder stay on track because they must pass inspections before receiving each of the subsequent payments. This type of mortgage can be more expensive in the long run because the borrower must cover the cost of each inspection. You begin procuring interest on your loan as soon as you receive your first payment. You also don’t have the option to upgrade or change your loan terms once you accept your first payment.
When Should You Use Construction Financing?
Construction financing can be used by either individuals or companies to fund multiple different types of projects.
Below are several common uses:
- Single home construction
- Sub-division or high-rise construction
- Commercial property projects
- Conversion or restoration developments
- Storefront Apartment Construction
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