How to Finance New Home Construction
From the start once you plans have been chosen, and you have a budget financing this project should be a priority unless you are the fortunate few who have no mortgage. How to finance new home construction was an entirely new concept to us and found out quickly that not all banks are warm and fuzzy to the concept.
photo credit: gettattoo
Our community is full of new home construction and one bank stood out from the pack and embraced the concept to the point of having an individual who even comes to your home to explain the process and establish if your are a good candidate. This bank was the National Bank of Canada.
If your are planning to contract your own home then be ready to have at least 30% of the cost of the project in cash on hand. This is just one of the criteria the bank will evaluate from the start if your are planning to finance new home construction. A budget will have to handed in that is well organized but not to detailed, as well as your home plans so that their specialist can evaluate the value of the home once finished.
Upon completion of those steps you should be approved. Now from our perspective, we found that a bit more cash on hand was appropriate given the need to purchase the lot first and that 50% makes it very comfortable cash flow wise, but, that with the required 30% it can be done, but here is a word of advise.
The disbursements are as follows and each bank is different. 30% upon completion of the foundation, 30% enclosed ( structure, windows, and gyp rocked), balance due upon completion of trim door & fascia and exterior and any decks and stairs with a hold back of 10% for 30 days.
The issue is that the first disbursements require that the banks inspector comes by to inspect the progress to determine if the % achieved is appropriate, secondly you must see a notary to complete the legal process . This first installment takes time at least 2 weeks so make certain that you are not up to your neck waiting for cash.
Upon completion of all the disbursements you basically have a demand loan at what ever percentage you negotiated, from there the bank comes in confirms and re evaluates the finished product and provides a mortgage on your home.
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