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The construction mortgage is designed to finance the building of a new home or significant renovations to an existing property. The down payment required for a new construction is typically more than residential/commercial mortgages since there is no existing property to secure the mortgage. Construction mortgages differ from traditional mortgages as the funds are released in stages, corresponding to the different phases of the construction process. There are two stages of funding including Draws and Inspection:
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Draws: Funds released in stages which correspond to the completion of specific stages in the construction process, which includes land purchase, foundation, framing, lock-up (windows and doors installed), and project completion.
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Inspection: Before lender releases the next fund, each draw typically requires an inspection to confirm that the specific stage of construction has been completed satisfactorily.
GET FINANCING TO BUY LAND
A first advance is available as equity take-out if builders already own the land they want to build on. But a first advance is available to assist builders with the purchase of a vacant lot if they have not yet purchased the land.
BUILD A HOME ON THE LAND
A builder's mortgage is given in stages – so-called “draws” – as the builder completes various levels of construction. While the home is under construction, lenders often require borrowers to pay off the interest only and would ask for the balance upon completion.
