If you’re planning to build a new house, applying for the construction loan in Ontario can be a great way to get started. Constructing a house with your exact specifications may be tedious, but with the help of a construction mortgage in Ontario, you can secure enough funds to take care of all the building expenses.

What is a Construction Loan in Ontario?

A construction loan in Ontario is a short-term and high-interest loan that is used to finance the costs of building or renovating your home. Unlike in the traditional mortgage, construction loan lenders directly pay the loan to the contractor that is overseeing the building process.

Considering the fact that the home building loans are short-term, they can cover all the construction costs without delays until your home is complete. By using the construction mortgage in Ontario, you can design and build a house that has everything you need to keep up with your dream lifestyle.

Types of Construction Financing in Ontario

Before setting out for a construction mortgage in Ontario, ensure that you understand how different kinds of construction financing in Ontario operate. Here are the three main types:

• Construction-to-Permanent Loans

With a construction-to-permanent loan (or a single-close loan), you use the borrowed cash to build your home. But once the construction is complete, the loan automatically converts to a mortgage. At closing, you can lock in the interest rates.

• Construction-Only Loans

With a construction-only loan (or a two-close loan), you must pay off the loan fully once your home is complete. This type of loan is best for you if you have reserved a large amount of money to pay at the end of the construction period.

• Renovation Construction Loans

With this type of loan, you can wrap up all the costs of construction and home renovation loan into the final mortgage. The loan size is determined based on the value of your home after the repairs and renovations.

Options for Construction Financing in Ontario

Generally, there are two options of construction financing in Ontario: a progress draw mortgage and a completion mortgage. The two options can sometimes be combined to bring the best out of each.

• Progress Draw Mortgage

With the progress draw mortgage, the lender gives out money at intervals (three to four draws) depending on the construction milestones specified by the homeowner. Upon the completion of each stage of construction, an appraiser has to give a report.

• Completion Mortgage

The home construction loans can only be transferred upon completion of the home you are building or intend to buy. However, you may still be required to make some down payment at the start of construction.

• Combined Mortgage

Here, you combine both the progress-draw mortgage and the completion mortgage. For instance, when constructing a new home, you may begin with the progress draw mortgage and later convert it to the completion mortgage.

How Do I Get a Construction Mortgage in Ontario?

Getting a construction mortgage in Ontario might be a bit more complicated than getting a traditional mortgage since it includes some risks. As a result, home construction loans lenders tend to impose strict measures to minimize the risks involved.

To qualify for the construction loan in Ontario, you’ll need to have:

• Enough equity in your existing house to act as collateral;
• A stable source of income;
• Lower debt-to-income ratio;
• Down payment of 20% to 30%;
• Good credit score of about 680 or higher.

You’ll also be required to provide detailed information regarding the construction site, approved building plan, contractor agreement form, building materials, estimated construction cost, and the construction start and end dates.

You ought to work with a highly qualified contractor for quicker and easier implementation of the construction project.

What do I Look For in a Construction Loan in Ontario?

With an idea of your total construction cost, you need to find a construction loan in Ontario that has suitable terms and rates. By doing so, you can build your new home faster and incur fewer expenses, especially those that come along with delayed construction.

As you think of getting a construction financed in Ontario, here are some things that are worth considering.

• Flexible rate options (adjustable and fixed rates)
• Flexible down-payment options
• Manageable monthly payments
• Interest only payments at the construction phase
• Single closing at the beginning of construction
• Lockable interest rate at the start of construction

What Does a Builders Mortgage Include?

With a builders mortgage Ontario, you can gain access to different forms of construction financing in Ontario. The lenders disburse funds to the contractors supervising each phase of construction. Some of the kinds of a builders mortgage in Ontario include:

• Land Purchase Loans: Include the cost of buying a vacant or partially developed land where your home is to be constructed.

• Site Development Loans: Financing the development of other infrastructures, such as roads and sewers surrounding your home.

• Home Construction Loans: Financing the building and renovation of your home, which is also known as building construction loans.

• Construction Bridge Loans: Cover all the costs not catered for by the building construction loan.

One advantage of a builders mortgage in Ontario is that you can use the funds to pay off an existing loan on the land you are building your home.

Choosing a Construction Loan Provider in Ontario

Since construction loans in Ontario may be hard to get, it is vital to select the lender that is reputable. By choosing an experienced construction loan provider, you can easily get yourself new home construction loans to finance your home building.

Now, let’s look at some things to consider when looking for the best construction mortgage lender in Ontario.

• Loan Rates and Terms: Compare the rates and terms of different lenders to find the most favorable one.

• Loan Requirements: Check out all the requirements of each builders mortgage provider in Ontario and select the one with few requirements and procedures.

• Communication System: Because you’ll need to communicate with your lender throughout your home construction process, select one with a well-established communication system.

Final Word

Obtaining a home construction or a home renovation loan in Ontario may not be an easy task, but it offers incredible benefits when you are committed to seeing your house built.

When applying for a construction loan in Ontario, it’s good to be realistic with your home construction budget and schedule.