There’s a lot to think about when it comes to finding, comparing, qualifying for, and obtaining a mortgage for a new home build . However, once you understand what’s involved, you’ll see it’s actually fairly straightforward. In this article, we’ll walk you through the entire process and we guarantee you’ll come out feeling much more confident at the end.
Draw Versus Completion
Essentially, a “completion mortgage” is your standard mortgage for a house. While often used when building from scratch, you’re not required to pay anything until you’ve taken possession. This means the builder gets paid in full after the home is built.
A “draw” mortgage, on the other hand, delivers funds directly to your builder throughout the new home build process. In other words, instead of paying the builder one lump sum at the end of the construction process, your builder will be able to “draw” from the mortgage money while working to build the home of your dreams.
The Perks of Completion Mortgages
If everything works out perfectly, a completion mortgage can be a good step for some buyers. Unlike a “draw” mortgage where you’re on the hook for monthly payments before you’re living in the house, a “completion” mortgage allows you to remain debt-free until the house is 100 per cent done.
What’s more, if you currently own a home and are waiting for a new one to be built, a completion mortgage saves you from having to pay two mortgages at once. This is also a huge benefit in the unlikely event there is a delay during the building process (due to bad weather etc.).
And, depending on how interest rates are moving in the mortgage sector, you may benefit by waiting longer in order to secure a better deal from the banks. Since it takes between six and 12 months for a new home to be built, this additional time can be used to scout out banks and lenders to find the best deal available. Working with the builder’s preferred lender may also be ideal, as you can look forward to a speedier approval process.
Things to Keep in Mind
When you visit the bank, you’ll have to pass a credit check, and the bank will also look at other factors like your credit score, employment history, and other data. You’ll also need to discuss the term (length in years of the loan), interest rate, and other details with the bank. The bank’s assessment and qualification process may take a while, so be sure to put all major purchases on hold during this time.
Regardless of what your new home builder recommends, it’s a good idea to sit down with a trusted financial adviser and assess your options. Shop around for lenders with the best terms and conditions, and speak with your builder to see if they have a preferred lender that has experience working with new home builds. Then, when you’re ready, you’ll know exactly what type of mortgage will work best for you and your needs.
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