If you are in the mind to build your dream home tailored to your needs instead of buying pre-made or existing houses, you may consider taking up Construction Mortgage.
Kinds of construction mortgage
§ There could be a situation when you need the funds upon 100% completion of your home.
§ If you have signed a contract with a registered builder for your home and the builder needs financing draws you could opt for: Completion Mortgage or Progress Draw.
§ If you are your own contractor and would get sub trades to complete the work you could opt for the same again: Completion Mortgage or Progress Draw.
How do construction mortgages work?
Construction mortgages are extended to the borrower on the basis of the completion of certain stages or levels of construction or what is known as Progress Draw Mortgage. When you take up a construction mortgage you can take out or 'draw' the mortgage sum at various stages of your home construction. For example, if you are yet to buy the land on which your house will be built, you can get the first draw to aid with the buying of a land or a plot. If you already have the land on which the house will be constructed, you are eligible to avail the first draw as an equity take-out towards construction. To avail a Progress Draw Mortgage you would need the help of a solicitor.
Stages of draws of a construction mortgage
First advance or First draw – This can be availed before construction begins.
Roof Stage – This draw can be availed when the construction is approximately 35 % complete.
Intermediate Stage – This draw can be availed when the construction is approximately 65 % complete.
Completion Stage – Lenders are particular about giving the final advance only after 100 % completion of the house.
One must however note that these draws can be availed after the appraiser’s Progress Inspection Report or Percentage Complete Inspection Report.
Interest on Advances: The borrower is charged interest on amounts advanced at all stages.
Three key points no one will tell you about construction mortgages:
§ Once the mortgage is approved, you cannot change the mortgage amount in case any upgrades are needed.
§ Before each draw is advanced, an inspection will take place to make sure that your builder is following the NHW (New Home Warranty) policies besides the stage completion.
§ You will have to bear the cost of the inspections.
Documents you would need to apply for a construction mortgage:
§ Written proof of income and employment
§ Copies of quotes (if self-building)
§ Proof of down payment or equity
§ A copy of the title or offer to purchase for land or
§ A copy of the signed contract with builder hired
§ Full appraisal
§ House Plans or House Specifications
§ Proof of Fire Insurance
If you need any further help or clarification on construction mortgages we are happy to help.