Mortgage Broker for Self-Build Construction Loans in Winnipeg

June 7, 2021 | Posted by:

Mortgage Broker for Self-Build Construction Loans Winnipeg

You’ve identified your dream lot and want to get a mortgage for a self-build construction project. You’ve also made the wise decision to work with a broker instead of approaching a lender on your own, so is there anything else you need to know? As Winnipeg’s most trusted mortgage brokerage we want our clients to be as informed as possible. So before we move forward with your exiting new project, have a quick read below.

What You Need to Know Before Getting a Mortgage for a Self-Build Home Construction Loan

Disregard “Completion Mortgage” Chatter

When searching for information about the best mortgage broker for a self-build you may come across chatter about a “completion mortgage”. Since you’ve already indicated that you’re interested in a self-build loan you can disregard this option, which is not relevant to your needs. A completion mortgage is for those who are purchasing a house through a new home builder, and taking possession once the construction is finished.

You Need a Progress-Draw Mortgage

As someone on the verge of a self-build you are seeking a progress-draw mortgage (or just “draw mortgage”). This is a type of financing that lets you tap into a portion of the loan through phases of the construction process. You will use it to pay for supplies, materials, and contractors (as applicable) on a timeline as needed. In no scenario will you or a contractor receive the full loan upfront. Disbursement will be contingent upon completion progress of the home. This protects the lender from minor delays to more significant disruptions, and ensures that funds are actually put towards the construction of the home.

Do You Already Own the Land?

What you require from a construction loan depends on whether or not you already own the land. If not, the initial loan payment on a construction loan can be used to purchase the land on which to build. Alternatively, if you already hold a loan on the lot, the first disbursement of the construction loan will pay-off that loan before construction starts. How this plays out is different between each lending institution, but this is where having a mortgage broker at your side will make a big difference. We will ensure that you have access to the best home construction financing options, those that consider whether or not you own the lot. 

A Few Caveats

Mortgage brokers are brought in for nearly all self-builds in Winnipeg due to the often complicated nature of the loan. On the surface, a draw-mortgage (above) sounds fairly straight forward, but it varies from lender to lender. 

Some lenders may disburse drawn funds to your lawyer, who will then send them to your contractor. In some cases, a lender will only deal directly with the contractor and subcontractors. In nearly all scenarios, a lender will send a home inspector to the property to review the building progress. The inspector will submit a progress report to your lender who will (assuming all is right) release the next wave of funds accordingly. This is done to ensure that the home-build is going according to plan, and on-schedule. If at any point the inspector evaluates that there is a risk of a major delay or outright default, your lender may decide to withdraw further financing. 

Borrowers who are themselves contractors and plan on building their own home are typically under more scrutiny. If the self-build is indeed a self-build in the purest sense, working with a mortgage broker becomes even more important. You will need to tap into those existing relationships between broker-and-lender, as on your own, financiers may deem your situation to be too high-risk. Having that middle-person (a mortgage broker) is a comfort not just to you, but to them.

In all scenarios, you must prove to lenders that you have sufficient funds for deposits required by material suppliers, and can cover what is needed if there is a discrepancy between the amount financed by your lender and the actual cost of the project.

The Same General Requirements Apply

While there are many distinct differences between a self-build and a traditional mortgage, the same general requirements apply. As a borrower you still need to come up with the downpayment. You still require a favorable credit rating, and need to prove consistent income that can cover the term payments on the mortgage. You will also be able to decide between fixed and variable rates, both of which can be “reduced” via a well-connected broker. 

Everything above represents the basics in a self-build mortgage in Winnipeg. There are still a lot of moving pieces that are contingent upon both your financial situation and how you plan on conducting the home construction project. Bring in a mortgage broker before breaking ground. Contact Ron Chan today at 204.290.9950 to discuss your specific needs.

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