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How to Finance a Custom Home in Canada

Planning to have your dream house come to fruition soon? If you’re looking to build a house that meets your and your family’s needs best, then a custom home might be the one for you. But how much would it cost, and would you be able to finance a custom build? Many would-be homeowners who purchase pre-built houses have access to housing loans. Fortunately, the same can be said with building custom homes from the ground up.

What is a Builders Mortgage or Construction Mortgage?

A builder’s mortgage is a great way to finance a custom home. Constructing a house from scratch can be expensive and will require more of your time and resources. However, many find the investment in a custom house well worth the trouble once they see how the end product is the best fit for their preferences and lifestyle. A construction loan helps you take care of the financial aspect of building a house and can ensure that you will have the funds available at various milestones during the building process.

A construction loan is given to the borrower on a progress advance basis. This means that you won’t get the full amount upfront but in stages, as parts of your house get completed. Otherwise called “draws,” this type of building mortgage releases the funds at various levels of accomplishment, ensuring that you don’t run out as you near the finish line.

There are different draw schedules that construction loan providers typically follow. Here’s a table of draws to give you an idea how it works.

 

Stage Required Completion Stage in Construction % of the Loan Amount Advanced
Draw 1 (optional) 15% Excavation and foundation 15%
Draw 2 40% Roofing 25%
Draw 3 70% Plumbing and electricals 25%
Draw 4 80% Cabinets installed, doors hung, etc. 25%
Draw 5 100% Ready to occupy 15%

 

Projects that Qualify for a Construction Loan

Do all types of building projects qualify for a construction mortgage? A construction loan can be tailored to the project you are financing.

Some of the types of projects that are considered suitable for a building loan include a new home purchase where the contractor requires that you pay in installments per milestone and building a new house in a property that you already own.

Home renovations can also qualify for a construction mortgage, like when you buy a new home that you need to remodel or when you need to make renovations to your current home to accommodate growth or change the aesthetic.

What are the Inclusions of a Construction Mortgage?

Construction mortgage agreements are designed specifically to meet your needs. A loan officer from the financing agency will guide you through the whole process and will provide you with all the knowledge and advice you need to finance your custom home.

Beyond the actual building and materials necessary to construct your house, a construction mortgage can also include labour expenses, permits and plans, land, and closing fees. You can also set aside some of the money for interest reserves or as a contingency for an emergency or if the actual expenses on your custom house are larger than your initial estimate.

Tips on Financing Your Custom Home in Canada

How do you get starting on building and financing your custom house in Canada? The process is pretty straightforward. Here are some tips to remember when you are trying to finance your custom home.

  1. Know all the steps that the project entails from start to finish. This way, you can see how the project is going for yourself and not have to rely solely on the contractor for insights. It’s your house, after all, and you would need to be involved every time a milestone is hit.
  2. You might have an initial cost estimate for your custom home, but know that things can still change down the line. You have to account for changes in labour rates, cost of materials, and force majeure. That’s why it’s important to have a buffer or to assign a certain amount on your custom home mortgage loan to address the unexpected.
  3. Work with a contractor that you trust and with whom you are comfortable. A custom home will require plenty of insights from you, so you need a builder that truly cares about what you want and will work to deliver these the best and most cost-efficient way possible. Remember, you will be living in this house for a very, very, very long time.

Building your custom house from the ground up is a challenging yet highly rewarding experience, especially when you see your home fully completed and ready to be occupied. If you do your due research and select the right team for the job, you can maximize mortgage loans to make way for other things you might change along the way.

Our team at True House is composed of experienced, knowledgeable, and caring professionals who can help you find solutions to finance your custom house in Canada. We have a long track record of happy customers who are now living in the homes of their dreams. Contact our advisor today to schedule a consultation.

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