business3.jpg

Blog

Getting a Mortgage to Build a New House

Posted on March 16, 2021 by Peter-John Woolf

getting-a-mortgage-to-build-a-new-house

Ready to build a new home? If this is your first-time building a new home, you may have questions about getting a mortgage. The good news is that your new home builder is there to help you, and we can help make the process simple and straightforward.

What type of mortgage do you need when building a new home?

New home buyers often assume that a special mortgage, like a construction mortgage (aka builders mortgage), is required. This isn’t necessary when building with an established builder like Broadview Homes, and instead a Builder Completion Mortgage is the best type.

What is a Builder Completion Mortgage?

A Builder Completion Mortgage is very similar to a mortgage you’d get for an existing home. The difference is that the full amount of the mortgage is predetermined when you apply and the interest rate is locked-in until you need it in 6, 9 or 12 months. When you talk to your lender, you can discuss what lock-in timeframes they offer for the length required.

The length of time you’ll want the interest rate locked-in for will depend on whether you’re buying a quick possession house or building a new home. Because quick possession homes are typically ready within a few weeks or a couple months, you can get a mortgage with a lock-in rate for three months. If you’re building a new house, then you’ll want to lock-in the rate for up to 12 months.

One of the advantages of dealing with your builder’s preferred lenders is that they’ll offer additional perks. For instance, our mortgage specialist will allow you to switch from the locked-in rate to the current rate if it is better.

Your 3-Step Guide to the Mortgage Process

There are only slight differences in how to get a mortgage when building a new home. And, if you’ve had a mortgage before, then you’ll recognize most of these steps.

Step one: Firm approval
If you were buying an existing home, this stage would be called pre-approval. It works the same way and your lender will require all of the same documents. The main difference is that the property valuation occurs upfront (before you start building), as opposed to after you get final mortgage approval.

Step two: Down payment
You need to have at least 5% of the cost of the home as a down payment. If your home costs more than $500,000, you’ll need 5% of $500,000 ($25,000) plus 10% of the remaining amount. For instance, if you wanted to buy a $600,000 home, you’d need at least $35,000 as a down payment. There’s always the option of paying more than the minimum. Learn more.

Step three: Closing the deal and moving into your new home
When construction is complete and you’ve completed your final walk-through, you’re only days away from moving in. Once you’ve given your final approval, the rest of the outstanding house price is transferred to your builder, you’ll receive your home title from the lawyer, and then you can take possession. Yeah!

What if I make changes?

Changes like upgrades will require you to get re-approved. This means you’ll need to go through the ‘firm approval’ process again at that time with the new valuation amount.

How long does it take for a mortgage to be approved?

It will depend on your financial picture. Typically, once all the required documentation is received and mortgage application is signed, then it will take 7-10 business days.

What you need to know about the Home Buyer’s Plan

The Home Buyers’ Plan (HBP) is a program through the Canada Revenue Agency (CRA) that allows first-time home buyers to withdraw up to $35,000 from your RRSP. If you qualify, you can withdraw the funds tax-free and use them towards a home.

Do I need mortgage insurance?

If you buy a home with a down payment of less than 20%, you’ll need CMHC mortgage loan insurance. This protects your lender in case you can’t make your payments.

Do you pay mortgage while house is being built?

You make no mortgage payments while the home is under construction. The mortgage’s repayment term starts at closing.

How we can help

If you choose to build with Broadview Homes, our mortgage specialist makes it easy by streamlining the process. They are already familiar with the construction process, how to structure a mortgage for new home construction, and are more flexible if there are any changes.

It can save you time and possibly even additional costs. Our builder's preferred lender already has a relationship with Broadview Homes and knows the value of our homes. If you get a mortgage from a lender who is not familiar with your builder, there could be delays and confusion over closing costs. A lender who doesn’t do his due diligence could result in thousands at closing if you’re not aware of it.

Dealing with our preferred mortgage specialist, you can be confident you’re getting the right mortgage. You’ll experience fewer surprises and hassles giving you peace of mind, and time back to enjoy taking possession of your dream home.

Here’s a list of additional resources:
Mortgage 101
Understanding the Down Payment Process
How our preferred lender helps

Topics: new home build, mortgage & financial, buy a new home, quick possession