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Okotoks Construction Mortgage

 

Mortgage lenders will loan you money if you have a big enough down payment and good credit to buy a standard, cookie-cutter home or condo in downtown Okotoks or the surrounding area. There are less lenders who will give you a loan to buy land and build a home because it’s considered too risky by many banks. But a mortgage broker in Okotoks can help you find a good deal on a construction mortgage. Here are some of the differences between construction mortgages and normal mortgages in Okotoks.

 

Loan Structuring

 

In summary, a draw mortgage, also known as a construction mortgage, is a type of loan used to fund the construction of a building or renovation of an existing property. The lender releases the funds in several lump sums, called “draws,” based on predetermined milestones outlined in the mortgage commitment letter. The first draw is usually used to pay off the land loan and build equity in the property. The lender minimizes their risk by requiring inspections at each stage of construction, and can withdraw funding if major changes are made or if poor quality work is detected. If you already own a property, you can borrow against the home equity to fund the renovations, but if you only have a plot of land, you’ll need to put down 20-35% of the property value to obtain a construction mortgage.

 

The Different Definition of Conforming Real Estate  

 

It’s important to understand the lender’s criteria when applying for a construction loan. The lender assesses the risk involved in lending the money for the construction project and will look at factors such as your credit, the expected marketability of the finished property, and the quality and reliability of the contractors involved. The lender may require inspections at various stages of construction to ensure the work is up to their standards, and may withhold funding if the project deviates from the original plans, schedule or budget. Keeping the project on track and working with qualified contractors can help ensure a smooth lending process and reduce the risk for the lender. To understand your options, it’s recommended to speak to a mortgage broker who can help guide you through the process.

 

Loan Terms

 

Construction loans are a type of loan specifically meant for building a new property. It’s usually a short-term loan and is usually paid off when you get a conventional mortgage for the same property. Sometimes, the construction loan can be converted into a long-term mortgage with a term of 5 to 25 years. Construction loans only charge interest on the amount that has been borrowed and it’s a more flexible option compared to traditional closed mortgages, which usually have penalties for early repayment.

Interest rates for construction loans are higher than conventional mortgages, but once converted to a mortgage, the interest rate will be a normal fixed rate. You can compare different options for construction mortgages just like you would for any other mortgage. It’s always a good idea to talk to a mortgage broker who can help you understand your options and find the best deal. For example, you might be able to use the equity in your current home to start building your dream home.

 

If you want to get started call your trusted Okotoks Mortgage Brokers today 587-441-9319.