Purchasing Land

You want to acquire that land now then build your dream home or vacation getaway, perhaps building right away or perhaps later.

Are you looking to acquire a vacant lot, lake lot, small acreage, or other bare land (up to 160 acres) intended only for your residential use, whether for immediate development or to hold for future development? Then you are at the right place!

 

You are either ready to build immediately or are hoping to wait a few months or years so you can really nail down your design and build plans.

 

If you plan on developing immediately in a suburban or urban area the downpayment may look like this:

  • 20-35% down if you bundle your mortgage with a new home construction mortgage
  • as low as 5% down if you work with a hired builder under a fixed price contract where the builder acquires the lot on your behalf during construction and you purchase the home at closing/completion

 

If you plan on waiting to build in a suburban or urban area because you have yet to pin down building plans/development date the approximate down payment could be between 30-35% down.

 

If you plan on purchasing a rural piece of land and defer the development the down payment is approximately 50% due to the fact it is further from amenities, emergency services, and possibly only has seasonal access therefore decreasing its appeal in the slight chance the lender takes over the mortgage.

The reason why buying vacant lots require a large downpayment is because lenders see it as a risk in the case you cannot pay your mortgage as it is harder to sell than a parcel of land with an existing structure. Some banks avoid lending to those interested in vacant land all together due to such risk.

 

New Home Construction Mortgage

There are two parts to construction financing

  1. The “draw term” which is the initial construction phase which provides the borrowers (for their builder/contractor/trades/suppliers) with funding during the various stages of their home’s construction
  2. The “end term” or “completion” mortgage which is essentially the normal mortgage that kicks in once the construction is 100% complete

For more information regarding the “draw term”, ask me.

 

Types of Builds

There are a few ways you may choose to get a new home constructed:

  1. Hire a Residential Home Builder approved by a New Home Warranty Program and register the property with the program. You would pay the builder in stages, and they in turn pay the suppliers and tradespeople
  2. Hire a General Contractor approved by a New Home Warranty Program and register the property. The contractor, suppliers and tradespeople may be paid by you directly or indirectly via the contractor.
  3. Self-Build where you act as the general contractor and hire qualified, licensed tradespeople to build the home. In this case you will have show that you have the time, expertise, and industry contacts to complete the project on time as lenders will put a time limit on the construction phase so that they can cut their losses if you run out of money. Here you will need to prove that you have substantial cash resources necessary to carry the project from draw to draw.
  4. Pre-Built where you simply decide to buy a prebuilt home from a builder and the builder gets paid only when you get the keys (upon completion). This would only require a new home purchase mortgage not a draw construction mortgage.

 

How to get approval?

  1. Qualify based on standard income, Credit and other Equity lender requirements
  2. New Home Construction Pre-Conditions
    • Construction must conform to the National Building Code of Canada and any other code of provincial or local jurisdiction.
    • Must be covered and under approval by a New Home Warranty program
  3. Draw Mortgage – Residential Home Builder
    • Signed Purchase Agreement
    • Offer to Purchase for lot if land not owned, or Deed (evidence of ownership) if land is owned
    • Payment schedule expected
    • Construction Specs or Plans (floor layout, exterior view) plus specification sheet
    • New Home Warranty Registration number
  4. Draw Mortgage – Contractor/Self-build
    • For General Contractor builds, signed construction contract including construction cost estimates, completion schedule (by Stage), and payment timing expectations per stage
    • For Self-build, list of detailed cost estimates/quotes form various contractors, compiled into a “Progress Advance Worksheet” showing each stage of construction including time lines, anticipated % complete, and anticipated completion date. For a template ask me.
    • Offer to Purchase for lot if land not owned, or Title (evidence of ownership) if land is owned
    • Construction Specs and Plans (floor layout and exterior view) plus specification sheet (ie. cabinet types, hardware, finishing, etc.)
    • Copy of builder/contractor’s risk insurance policy (contractor build)
    • Applicant resume substantiating construction knowledge, project management expertise, and industry contacts (self-build)
    • Copy of “Course of Construction” insurance coverage, which covers work in progress until completion.
    • Copy of your building and development permit(s).
  5. Pre-built Completion-Only Mortgage
    • Signed Purchase Agreement
    • Construction Specs or Plans (floor layout and exterior view)
    • MLS or specification/feature sheet
    • New Home Warranty Registration number

 

For more information in purchasing vacant land, to start your search today, or a referral to a mortgage company ask me.

 

Source: Richards Mortgage Group