construction loan basics
Securing the financing for your custom dream home may seem daunting, but we’re here to help you with everything from deciding on a budget to arranging the construction loan. Financing your construction doesn’t have to be complicated and we will work with your large lenders to make the process as smooth and easy as possible.
The Construction Draw Mortgage
The most common way to finance home construction is through a Progress Draw, in which the money is advanced in intervals as the home is being built. Usually four draws are made, typically at 25 percent, 50 percent, 75 percent and 100 percent completion although you can have the draws at whatever works for your cashflow situation. We typically recommend that you postpone draws as long as you can keep construction moving forward as managing cashflow is always challenging.
A Land Draw may be required if you are also purchasing the home site. If you already own the land, the bank can apply any equity as a down payment for the construction loan.
In this type of loan, interest is charged on all amounts advanced, then debited from your account monthly or taken from the draw amounts. The final advance will not be released until an inspection confirms that construction is complete; you have signed the final mortgage documents; and they’ve been returned to the lender by the solicitor. Like any mortgage, you want to ensure your monthly payments fit within your budget. This is particularly true with a construction loan – because you may be paying to live somewhere else while your new home is being built. During the construction phase, you want to keep expenses manageable and not incur any extra costs that might come with unpredictable delays in construction.
Arranging a Progress Draw may require a lawyer or a cost consultant; if you do not already have a lawyer or cost consultant, we can provide you with a referral further streamlining the financing process.
Let ESTATA give you the benefit of our experience in construction finance, along with the tools and contacts required to speed up the process and have you settled in your dream home as quickly and easily as possible.