Most people are aware of the construction mortgage. This is a financing option meant for construction purpose. The two types of mortgages include progress draw construction and completion construction mortgage.
Completion construction mortgage
This loan is used for purchasing a complete house or building. The builder usually fixes the price of a complete house.Types of completion construction loans include the following:
Purchase plus improvement
This is a loan which is used in purchasing a home which requires being taken care of. The house bought using such loan requires periodic improvements by a contractor. The contractor makes the improvements on the building once it is purchased until the owner is satisfied.
All-in-one construction loans
These are types of loans which are offered to you at an affordable rate both for the construction process as well as catering for the after construction activities. A penalty is charged on these loans in case you do not pay it within the set time limit.
Both the purchase and all-in-one construction loans share the following features.
- The builder can only request for money once the construction process is 100 % complete.
- The builder must have ownership of the plot where the building or home will be built.
- The lender might require an appraisal during, before or after the construction process. This is done to ensure that the amount applied for is worth the home being constructed.
- A down payment must be made. These can be done in the form of instalments
- There is no administration fee which is required when arranging for financing since the loan amount applied for is equivalent to the resale value of the property mortgage.
Before the mortgage loan is approved, you are required to present the following documents to the lender, they include:
- Working drawings and the house plans
- An appraisal which indicates the final property value after the construction process
- Site plan showing both the dimensions and legal description of the property
- A duly signed copy of the building contract. This document is signed by both the contractor and the owner.
Progress construction loan
This loan is applied when someone is constructing a home using a personal general contractor. These funds are applied at three stages during construction: when your building is 35 to 40%, 65-70% and when it is 100% complete. The interest rates associated with these loans are usually high the traditional mortgage.
The following documents are required when applying for a progress construction loan.
- A genuine copy of the land contract
- Copies of all the sub-contracts to confirm the cost of construction
- A resume to confirm that the hired contractor is knowledgeable about the construction process.