Buying a New Build Home FAQ

Looking at buying a new build? We have answers to the most common questions asked by our previous happy customers.

I am looking at buying a new construction home. What type of products do you offer?

We offer a range of  new construction home mortgage products with rate caps from 4 months up to 12 months. Contact us for more information.

 

What is a rate cap?

A rate cap locks in the maximum interest rate a client will receive for their mortgage. The rate cap is based on the rates at time of application for the selected product, less any discretionary pricing if given.

 

How can I stay in my current house while I am building my new one?

Some self-build/progress mortgages can fund construction of your new home while you remain in your current house. This will have to be approved by the lender. This approach, if approved by the lender, can be a more economical strategy of structuring your finances, rather than selling your current home and moving to rental accommodations. Provided you qualify, the lender will require confirmation of the sale of your current home (a written unconditional sale agreement) upon reaching a predetermined point of completion of the new home.

For peace of mind, and in order to ensure you have more funds to work with, many applicants opt to sell prior to starting construction on their new home and opt to reside in short-term rental accommodations or with other family members.

 

Can the interest rate cap be extended?

No, the rate cap is set for the determined period of time. If the rate cap expires, current rates will take effect.

 

If my progress draw mortgage has been approved as an insured mortgage, but I can now afford an uninsured (conventional) mortgage, what happens to the insurance premium?

As the mortgage was approved as an insured mortgage you will still have to pay the original mortgage premium to the insurer. This was agreed upon as part of the original terms and conditions of the mortgage and continues regardless of whether this mortgage is cancelled or amended to conventional.

 

Is the land draw deducted from the first draw?

Yes, when a land draw is approved on a conventional mortgage the 1st draw is split into two portions (remember lands draws can be approved on conventional mortgages only).

 

Can I have a land draw if I already own the land?

Land draws are subject to approval for conventional mortgages when the land is being purchased, has been purchased and is free and clear, or if there is an outstanding loan secured by the land.

 

What is the minimum percentage that lenders will fund final advance on?

Lenders will only fund if the house is 100% complete (less 3% allowance for seasonal holdbacks). This means that the house can be complete to 97% and the only thing that is not yet complete is something like siding or pouring the driveway. If this is the case, the lender will only fund 97% to the solicitor and will hold back 3% until a final inspection advises the house is 100% complete.

 

After the first draw, can I change the terms and conditions of the mortgage?

There are times when you can change your final mortgage terms after the first draw. Generally, you do not sign the final mortgage documents until the house is complete and therefore you will be able to make changes until that time.

 

Can I port my existing mortgage to a New Construction Mortgage to eliminate or reduce prepayment charges?

For completion mortgages you must return to your existing lender with a new mortgage to maintain the portability features. The new mortgage must fully fund within 90 days of the old mortgage being paid out. Conditions vary by lender and other qualifications may apply.

For progress draw mortgages, you have up to 90 days in order to maintain portability features. The first advance of the progress draw must be within 90 days, and the final advance of the completion mortgage must be within 12 months. The prepayment charge is paid upfront and then refunded once the final completion mortgage is advanced.

 

How long do I have to build?

Generally, there is no set amount of time imposed. However, keep in mind that funds will not be advanced if there is no progress in construction. Keeping to the construction timeline is far more economical to your bottom line.

 

On a self-build mortgage, do I pay interest on the whole amount I want to borrow or just what I have borrowed so far?

You only pay interest on the amount you have actually borrowed. As your project progresses and you borrow more, your monthly interest payments will increase.

 

How does the construction lien act affect my construction project and how is it handled during construction?

Any person or company that supplies your project with materials or labour has the right to place a lien against the title of your home as a method of recovery in the event of non-payment. The Construction Lien Act requires that an amount be held in trust from which a lien may be paid. The lender will instruct the solicitor to hold back an amount (typically 10% of each draw payment) until 45 days after substantial completion of the home. You should consult with your lawyer regarding the impact of the Construction Lien Act on your project.

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