Construction Financing Loans in Nanaimo, BC

A construction mortgage is different from a standard mortgage because the funds may be advanced in stages as the home is built rather than provided all at once.

These staged payments are often called progress draws. A lender may release funds after certain stages of construction have been completed and the progress of the project has been confirmed. The exact number of draws, construction milestones and inspection or appraisal requirements will depend on the lender and mortgage program.

This means you need to plan your construction cash flow carefully. Builders and trades may need to be paid before the next mortgage draw is available, so it is important to know the lender's draw process before construction begins.

Potentially. If you already own the building lot, the value of the land and any financing registered against it can form part of the lender's assessment of your equity in the overall construction project.

The lender will normally want to establish the value of the land, the expected cost to complete the home and the estimated value of the finished property. If there is already a mortgage or other financing registered against the land, that will also need to be considered.

How land equity is treated varies by lender and mortgage program, so it is worth reviewing the financing before committing all of your available cash to the property or beginning construction.

Construction financing generally requires more information than a mortgage on an already completed home because the lender needs to assess both you and the proposed construction project.

Depending on the lender and project, you may be asked to provide building plans, construction specifications, a detailed budget, building contract, permits, land information, builder details, timelines and evidence of your available funds. The lender will also review the usual mortgage qualification information such as income, credit, debts and assets.

An appraisal may consider both the current value of the property and its expected value once the home is completed.

Having the plans, budget and financing reviewed early can help identify potential issues before work begins or major deposits are paid.

Construction cost overruns can create a financing problem because a lender's original approval is based on an agreed project budget and financing structure.

CMHC requires lenders using its insured new-construction financing to consider whether the borrower has the financial capacity to cover cost overruns. Even with other construction mortgage programs, lenders may want to see that you have additional funds available if labour, materials or other project costs exceed the original estimate.

A higher final construction cost does not automatically mean the lender will increase the mortgage. Any additional financing may require a new review of the property value, your qualification and the lender's maximum lending limits.

For that reason, it is wise to build a contingency into the project budget and avoid using every available dollar before construction begins.

Possibly, but owner-built homes have additional requirements and not every mortgage lender will finance them in the same way.

In BC, an individual who wants to build or directly manage the construction of a new home for their own use generally needs an Owner Builder Authorization from BC Housing. Owner builders are exempt from the usual requirement to hire a licensed residential builder and arrange third-party home warranty insurance, but they take on specific responsibilities under BC's Homeowner Protection Act.

From the mortgage side, the lender will also need to be comfortable with the construction plan, budget, experience involved in the project, available funds, property and proposed draw schedule.

If you are considering an owner-built home in Nanaimo, Parksville, Nanoose, Ladysmith, Duncan, Courtenay or elsewhere on Vancouver Island, it is especially important to review both the financing and BC Housing requirements before construction starts.