Do you need to bump up your love for your home? Here are some ways to improve your homeownership experience.
Should you build or buy your next home? Most of us automatically think about purchasing a pre-built property when we enter the housing market. However, new home construction is becoming a popular option for many home owners as well. Building your own home provides unique benefits that are intriguing to certain people. Here’s an overview of how the process of new home construction works, and how it compares to buying a pre-built property.
How does the building process work?
People who choose to build their own home will need to secure a construction mortgage. Conventional lenders may not offer this product. A construction mortgage is more financially risky for the lender due the lack of collateral. Plus, building a home can result in delays, setbacks, and even a project shutdown in the worst case. For many traditional lenders, the idea of financing a construction mortgage is too risky, which means you will likely work with an alternative lender. We will discuss this in more detail later.
The actual construction mortgage comes in stages called draws. Instead of securing all the financing at once, lenders will provide money as the building process reaches certain milestones. Once the foundation of the home is completed, the lender usually provides about 15 per cent of the financing. The next 25 per cent corresponds to the completion of the home’s roofing and walls. Drywalling and plumbing then unlock 30 per cent more. Finally, the last 30 per cent is given once the entire property is complete.
The pros and cons of building
The biggest advantage of building your own home is the full personalization that comes with it. This is a huge draw for people who want to customize every aspect of their home. From the size of the property to its style, wall colours, appliances, and furnishings, you are in the driver’s seat. If you are someone who loves the idea of designing your own home from scratch, and you want to ensure your house feels like it is truly yours, this is a big attraction.
Another benefit of building your own home is you can choose where you want to settle. While you can also purchase a home wherever you like, you won’t always find a property in an area you like that also meets your needs. When you build a home, you can ensure you have everything you want, in the location you love.
The most obvious drawback of new home construction is the cost. Since construction mortgages are riskier for lenders, you may be working with higher interest rates than a traditional mortgage. This is due to the lack of collateral, so the higher rate provides some assurance to the lender. On top of mortgage costs, you also have to budget for all of the appliances and materials that go into your home. This means you are responsible for a lot more decisions and it is up to you to control their costs.
The other downside of building a home is how long the process can take. Home construction is a complex process, and it can take months or even years to complete. You will have to set up alternate living arrangements during this time, which may make you feel unsettled. Plus, all the moving parts involved in the process heightens the risk of building delays, which can push the project further down the road. You have to have a lot of patience during the building process!
Your first step…
If you are wondering whether you should build or buy your next property, the best way to begin is by reaching out to a mortgage broker. The decision to build a home is a big one, so it’s important that you understand the process and all the steps involved. As brokers, we can also help you break down the costs of new home construction and how it might work with your budget. Whether you decide to build or buy, we can help you find the right lender and mortgage product. By working with a broker, you can be confident you are starting this homeownership journey off on the right foot!
If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.