Understanding construction financing before you decide to build your own home.
With the steep rise in freehold house prices in Toronto, and the lack of inventory of quality modern turn key homes for sale, it may make more sense to hire an architect to build your own home.
For home buyers who are interested to undertake a home building project, the process for applying "progress advance" construction financing and the loan product offerings can differ greatly from lender to lender.
First it needs to be mentioned that the typical Buyer who should be entering into these projects are individuals who have....
established credit histories with a decent rating
Income that can be fully documented (no equity lending “stated income” programs)
Sufficient financial resources beyond the bare minimum so they can handle potential cost overruns, fund construction lien hold backs as the lenders by law will need to hold back 10% of their advances by law (in Ontario) and pre-fund portions of the construction costs or land acquisitions costs prior to receiving funds by the lender.
A typical progress advance construction financing is appraised to determine the “as complete” value. The lender and appraiser would need to examine the complete estimate and will need a breakdown of what is being built with what materials will be used. They will determine what the market value of the finished home will be worth along with the value of the land. The mortgage is then advanced in stages.
Sometimes an additional advance can be worked in – 50% of the land acquisition cost. This is approved on a case by case basis determined by the borrowers credit worthiness, and does not fall under the conventional approval process.
The bottom line is that it is necessary to have a good amount of capital to undertake a project to build your own home, and the lenders money comes in behind your money.
If you are looking to source a modern home or build your own architect desgined dwelling in Toronto, I have the knowledge and the professional network to streamline the process, and help you plan your next move.
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