Building Your Dream Home: Financing Guide for Custom Homes
Ever dreamt of designing and building your perfect home? This guide empowers you to navigate the financial aspects of building your custom dream home. We'll explore financing options, key steps, and valuable tips to ensure a smooth and successful journey.
Finding Your Perfect Canvas
The journey begins with the foundation – your lot! Consider these factors when searching:
Location, Location, Location: Proximity to desired amenities, schools, and your workplace all play a significant role in your quality of life.
Size Matters: Ensure the lot size accommodates your dream home design without sacrificing outdoor space.
Budgeting for Your Dream: Factor in the lot price alongside construction costs to create a realistic budget.
Pre-Approval: Your Key to Success
Before embarking on your lot search, speak to a licensed Mortgage Broker to secure a pre-approval for two crucial loans:
Lot Purchase Loan: A lot purchase loan finances the buying of undeveloped land.
Draw Mortgage (Construction Loan): This unique loan disburses funds in stages as construction progresses.
Bonus Tip: The equity you gain from your lot purchase and the builder deposit can contribute to your down payment for the draw mortgage, reducing your upfront costs.
Selecting Your Builder & Crafting Your Vision
Once you've found your ideal lot, it's time to choose a reputable builder. Collaborate with them to develop a detailed construction plan, including blueprints, specifications, and cost estimates. Remember, the 10% builder deposit can also be used towards your draw mortgage down payment.
Owning Your Land: The Raw Land Loan
With your dream lot identified, secure financing with a raw land loan. These loans are specifically designed for purchasing undeveloped land and typically require a minimum down payment of 25%.
Building Your Dream: The Draw Mortgage Explained
Now that you own the land, it's time to finance the construction phase with a draw mortgage. This loan disburses funds in stages, ensuring responsible use of capital:
Down Payment Leverage: Utilize the equity in your lot and the builder deposit to meet or exceed the minimum down payment requirement, typically 25%.
Essential Documents: Your broker will require the builder contract, blueprints, cost estimates, land title, purchase contract, and plot plan/real property report.
Draw Schedule: This outlines when funds are released based on construction milestones, such as foundation completion, framing, plumbing, and finalization. These funds go directly to your builder to keep the project moving.
First Draw Pays Off Land Loan: The first disbursement, typically occurring at the foundation stage, can be used to pay off your existing land loan, consolidating your debts.
The Final Stretch: Inspection, Closing, & Your Dream Home Awaits!
Once construction is complete, a final inspection confirms everything adheres to plans and local building codes. Upon successful inspection, closing finalizes the mortgage process, and you take ownership of your dream home!
Regular Mortgage Payments: After construction is finalized and all draws are disbursed, your mortgage transitions to a traditional monthly payment schedule.
Ready to embark on your dream home journey? Contact us today to discuss your financing options and navigate building your perfect home!
