Building a new house can be a very exciting process and a great way to take a dream and make it a reality. When building a house, whether as a self-build or from a builder there is a lot to coordinate as your workers, timelines and finances have to line up perfectly. This can create quite a bit of stress, however with the right people involved the process can be fun and exciting.
Construction financing is typically done in three draws at predetermined stages in the process. Typically at 35%, 65% and 100% complete. To determine the total amount of funds you need for the build, an appraiser will sit with you to go over your plans and costs of construction. Then before each draw is released to you, an appraiser will come by your new build to check the progress. As your project typically needs to be at least 35% complete before a lender will release funds to you, it’s important to assure you have personal funds on hand to cover any costs until the first draw. Lenders will usually want to see confirmation of these funds up front. As 35% of the cost of the build on hand can be a lot of money, some lenders will make an exception to not having the personal funds on hand if they can get confirmation from your builder that they are okay to wait until 35% complete to be paid.
During the process the funds are typically with an interest only payment to help with your cash flow however once you get close to completion the lender will start to take principle too. At completion, the mortgage will have converted to a predetermined term and rate. For example, a 5 year fixed rate mortgage.