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What is a Completion Mortgage and How Does it Work?

Posted by Matt D. on Wed, Aug 26, 2020

If you’ve thought about building a brand-new home, you’ve probably wondered how the mortgage process works. After all, you’ll be buying a home several months before you can actually move in. Will you be responsible for two mortgages at the same time? When do you need to apply for a mortgage for your new home? Is the process the same as it would be with a move-in ready home? 

Let's break it down. 

Two Types of Construction Loans 

Mortgages for new construction homes in Regina are a bit different than traditional mortgages. The mortgage on a resale home is backed by the home itself. If the buyer defaults on the loan, the lender can repossess the home and recoup the losses. When you’re building a new home, though, there isn’t an actual home to repossess. 

Buyers who are building a new home often take out “draw mortgages.” In this case, the builder can draw money out of the mortgage at certain times to help cover their costs. It's sort of like a line of credit. For instance, they usually draw on the mortgage in the early stages to pay for the foundation and materials. They also draw on the mortgage again throughout the process and at the final stage when the buyer takes possession of the home. 

At Pacesetter, we prefer to assist our buyers with “completion mortgages.” This is a mortgage you take over once you take possession of the home. We pay for the upfront costs, and you don’t have to worry about a thing. 

Completion Engineers Working Image How Completion Mortgages Benefit You 

If you were to have a draw mortgage, you’d have to start making payments right away. Granted, those payments would only be for the portion of the loan the builder drew on, but you’d probably end up paying for two mortgages at the same time (if you're still living in your current home). This isn’t the case when you get a completion mortgage. As we mentioned, you take it on when you move into the new home. 

You also have protection in the rare instance there is a delay. This doesn’t happen often, but sometimes inclement weather or a breakdown in the supply chain can mean it takes a little longer to complete your home. With a draw mortgage, that could mean an extra month or two of double mortgage payments or being stuck without a place to live when new buyers want to move into your old home – but with a completion mortgage, you have no worries. 

Things to Watch Out For 

As with any new home purchase, you want to avoid making any purchases or decisions that could negatively impact your financial status. For example, taking out a new car loan or putting your vacation on your credit card can cause a hiccup in your credit score. If your score dips too low, you might not qualify for the same rates, and higher rates can mean the home is no longer affordable for your family. 

completion-mortgage-couple-home-imageWhat You’ll Need for Your Completion Mortgage 

To get a completion mortgage, you need to qualify for the mortgage before the builder starts constructing your home. This means applying through the bank and offering proof of finances, such as tax forms or pay stubs. Some lenders don’t offer completion mortgages, so you may want to go through the builder’s preferred lender. 

You’ll also need to make decisions about your home upfront to get an estimate of the cost. At this point, things won’t be completely set in stone, but you may not be able to make major changes after the initial approval. 

Completion mortgages are better for buyers, and that’s why Pacesetter has chosen to offer this type of loan. Contact our Area Managers if you have any questions about the process.

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 Photo credits: home plancouple homeengineers 
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Topics: mortgage & financial, pacesetter homes Regina, Build Your Freedom, Mortgage & Finance, Mortgage & Canada, Completion Mortgage