DRAW MORTGAGES
As a brokerage, MMG Mortgages is proud to specialize in construction draw financing.
We can help facilitate your land and build financing via an exclusive 5 step draw mortgage. This includes builders show home financing, spec financing for resale, and the construction of an owner-occupied property. This also includes financing for land acquisition if the lot is not already owned.
A Draw Mortgage is typically required when you are building a custom home where the builder requires advances throughout the construction. There are advantages to a draw mortgage for the consumer as well in that you are able to lock in today’s interest rates at the start of construction. This can protect you in a market where interest rates are rising. The title of the build/land is also held by the borrower and not the builder which can add a layer of comfort or protection to the consumer.
The best place to start is by applying HERE to obtain a pre-approval to determine maximum affordability.
Before we are able to complete final underwriting of the application, we require a copy of the Fixed Price Build Contract from a new home warranty builder and the floor plans for of the new proposed home. This is in addition to our standard supporting documents. We would add the value of your land to the estimated build price to determine the final end value. As the approval process progresses, an appraisal is required on both land and build to confirm the as-complete build price. The cost of the appraisal is at the responsibility of the consumer.
Once the mortgage has been approved, permitting achieved and lawyer signing complete the build would commence.
Draws and Inspections
Draws would be advanced at pre-determined stages of construction. Before these funds are released to your solicitor, an inspection will be performed to ensure the build is progressing to the banks satisfaction. Each draw is then advanced from your bank to the solicitor, and the solicitor must then release the funds to your builder. There are nominal expenses each time an inspection is completed
Builder Lien Holdbacks
The mortgage funds or draws that are advanced to the solicitor will have a 10% builder’s lien holdback. This protects you as it ensures no contractor liens are placed on your property during the construction phase.
Upgrades for Your New Home
At your initial meetings with your builder, you will likely be choosing plans for your new home and arranging a basic price point. Generally speaking, we require a fixed price contract opposed to a cost plus agreement or a purchase contract with an estimated management fee.
In the months following the initial design, you may decide to upgrade certain specifications in the home that are not part of your package price. In most cases, MMG Mortgages will have already completed your mortgage approval and you will have signed these documents with the solicitor. This means you are not able to change your approved mortgage amount to accommodate any upgrades or changes made to the home. Therefore, we recommend you add an upgrade allowance to the base price of the home as a contingency to cover any shortfalls. This is something to address with your home builder.
