Stones Superior Homes - Blog - Financing a New Build While Owning a Home
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Financing a New Build While Owning a Home

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You have a vision of what you want your house to look like from when you pull into the driveway to when you open the door. Most of the time this isn't attainable for your first home, most of our customers are already living in a home when they start building, sounds expensive right? It can be, but here are some things to keep in mind.


1. Keeping your Current Home

Some people like to keep the current home they are in while also financing a build, others prefer to rent while they build, have a talk with your mortgage lender and go over your income and expenses to see what works best for your checkbook.


2. Construction Mortgage Basics

When you're looking for a loan when building a house, and there is no physical house yet there are some documents you'll need to have with you when talking to your mortgage lender, such as construction contract to show costs, plans or blueprints, site preparation details, a deed or sale agreement for the land, confirmation that down payment funds are available, and confirmation of personal income.

"Money from a construction loan is usually disbursed in three parts or “draws”. The first draw is usually released when the build is 35% complete the second when it’s 65% complete and the third when it is 100% complete. An appraiser will have to inspect the construction at these three stages to verify to the lender that the work has been done. Usually, the lender requires that the home is completed within 12 months of the start date."


3. Qualified-Builder Homes

If you are buying a home that is in the middle of being built the mortgage process is very similar to a house that has not yet been started. Your mortgage payments will start when the builder is paid upon completion of the project, and the lender will have the security of a finished home. 

Mitre Saw

4. Self-Builder Homes

If you already have land purchased that you plan on building on yourself or hiring a private contractor to do the work for you, this is where the “progress draw” construction loan is used. You must ensure you have enough funds to float the project until the first stage of construction is complete. During construction, you only make the interest payments on the outstanding loan balance. Generally, when your new home is finished and inspected, the lender converts the loan into a regular mortgage. However, you can explore the option of taking a building loan with one lender and the mortgage on completion with another.


There is a lot of work that needs to go into building your new home, and it begins with looking at your finances. A personal mortgage broker will go through the concepts of construction mortgages and can give you information that will help you decide whether managing your own build, having a professional builder manage it, or buying a new home already under construction is the best option for your specific situation.


Remember, don't let yourself get overwhelmed by the process, there are many other happy homeowners that have gone through the same process, and are now loving they're new homes!


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September 28, 2022