Are you thinking of building your own home?

This week I’d like to share some thoughts about new constructions. Lately, I’ve had quite a few clients that have decided to build their own homes. New constructions are different from “turn-key homes”.  A new construction is a unique home where you directly hire a professional to build your home. In a turn-key home you approach a builder who is selling say twenty new homes that will be ready next spring.  

This week’s article is inspired by a couple that I have been working with from St Lazare area who are building a new home with a contractor in Hudson.  If you’re considering building your own dream house then here are a couple steps to keep in mind. First and foremost the banks will require that you purchase the land needed outright.It is possible to finance the purchase of land but typically most will purchase outright. Next, it is suggested that you partner with a construction company or contractor who has experience with this type of project. Here you and the builder will need to pen to paper in terms the project scope. The banks want to see housing specs, costs and timelines. Before you buy your land or hire a contractor it’s a good idea to confirm with the lender whether the contractor is acceptable for the bank. Certification is essential here.

With land in hand and bank approval on the contractor it’s also very important to clearly get a final approval on financing before you break ground. It’s also a very good idea to know how many funding dispersals the contractor will need over the life of the project. Typically, the bank will provide funds at every critical phase of the construction. You as the borrower will typically be paying interest only on the portions borrowed. Once the house is completed then the construction loan would be converted to a conventional mortgage. The banks will furthermore send an evaluator at every critical phase before funds are dispersed.

In general terms, the above covers an ideal outline how anew construction should be managed. Lately, I have also come across new constructions where the client approaches me after they have bought the land and completed 50% of the house. Banks don’t like to get involved in such late stage projects. Such late stage projects can be financed but through a private lender over the short term and after completion it’s possible to refinance the property with a conventional bank. I have also seen projects where the client came to me at such a late stage where both conventional banks and private lenders would not finance the completion of the home. In that case it was heartbreaking as the client found out very late that given the location of the home and construction costs it did not fetch his expected market value hence there was no interest to finance the rest of the house.

On a personal note, I wanted to thank everyone for the great questions the past couple weeks. I really appreciate the feedback and enjoy interactive part of these articles. If you have any specific questions you’d like to discuss in next week’s article please feel free to contact me.