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14 Aug

Things You Need To Know About Construction Mortgages


Posted by: Roberto Pelaccia

If you don’t know what a construction mortgage is, not to worry because it’s exactly what it sounds like. You are taking out a mortgage to cover the cost of building your home. However, there are also other kinds of “construction” mortgages that you should be aware of.

In this article, I’m going to take you through some of the different kinds of mortgages for situations where your home isn’t actually built yet.

Completion Mortgage

This is one that you’ve probably heard of with all the new homes being built and new developments being done. This is a scenario where you would apply for a mortgage but the loan itself isn’t transferred until the construction of your home is complete or until you take possession of said home. However, you may still need to come up with a downpayment, which you might be able to pay in installments versus all at once.

Now, some people may think this is a dream situation. You get to go pick out your home, have it built exactly how you want, and you don’t have to pay anything upfront.  But, there are very real downsides to this option that you might not have thought of. So, like I said, you pick out your home and don’t actually have to have your mortgage transferred until your home is completed, however, what if something were to happen in your life that put your mortgage approval in jeopardy? It could be that you lose your job, change jobs, or need to take out another loan for something important. These are all things that would work against you being able to qualify for a mortgage, which I’ve explained in a previous article. So, depending on the length of time between your mortgage application and when you will take possession of the home, you may not want to agree to that kind of a commitment due to the risk of inevitable life occurrences.

Draw Mortgage

Another option when looking at construction mortgages is a draw. Just like it’s called, this kind of construction mortgage allows the developers to draw money from the mortgage as it’s needed throughout the construction process. If you are building your own home, you can also do a draw mortgage and withdraw money as building milestones occur. These milestones are typically when the construction begins, at 40% completion, at 70% completion, and then at 100% completion.

This is a good option for people who do not want to have to pay the entirety of the construction charges up front, without having anything to show for it until the house is built. However, one of the downsides to this option is that you will need to have an appraiser come in periodically to ensure everything is on track and is being done to code. The downside to this is that you obviously have to pay this appraiser every time they pay your site a visit.

Another downside to this option is that you may have to start paying interest on the mortgage as soon as you make your first payment. This means that you’ll be paying interest on a home that you don’t live in yet.


Having said all of this, obtaining a construction mortgage is doable and might be the option you’re looking for depending on your specific situation. It’s good to keep in mind that obtaining a construction mortgage can be a little bit trickier than getting a traditional mortgage but can still be done through a Mortgage Broker or Agent. In fact, with Mortgage Brokers having a wider access to lenders, it’s to your benefit to visit one to see what lenders are available to you. I say this because some lenders will only allow you to have so much time for construction and you may also need an estimate for construction costs.

So, if you’re looking at possibly getting a construction mortgage, it’s good to keep these things in mind and make sure you know all your options. If you have any questions, don’t hesitate to reach out.