Financing a new home build through builders, banks or brokers: Answers to your burning questions!
Although you may already be familiar with the financing process when it comes to buying an existing home, the process is a little different when it comes to financing a home that’s being built for you. Perhaps you’re unsure whether you should approach your bank or a mortgage broker. Our clients often ask us about the buying process, so we’re sharing our answers to two popular questions in today’s post.
Q. I’m thinking about building a new home, instead of buying an existing one. What are my financing options in this situation?
A. In this situation, there are two possibilities:
- Builder finances the build: The builder takes a deposit before construction begins (usually 10% of the purchase price) and then finances the remainder of the build all the way to possession day. The homeowner then pays the outstanding balance on the date of possession (via their mortgage or their own funds). Lexis offers this option to clients (in this case, we hold the title to the property until possession day).
- Owner finances the build: Some builders simply don’t have the resources to finance the build so they’ll require their client to finance it. In addition, if the client owns the lot and the title can’t be transferred to the builder, the owner will have to finance the build. In this case, the owner will pay with their own funds, or, like the majority of buyers, they’ll have to apply for a mortgage.
Q. Sadly, I don’t (yet) own a Tesla Model S, and I’m not raising any #richkidsofinstagram. Translation: I’m not independently wealthy, so I’ll need to apply for a mortgage to finance the construction of my new house. Should I make an appointment with my bank, or go to a mortgage broker?
Financial institutions (banks and credit unions)
If you’re happy with your current financial institution, it’s a good idea to book an appointment with your banker or a mortgage specialist there to find out what your options are—but it still pays to shop around. Don’t just look at the posted rates online or in the branch—often, those are just a baseline.
Pros
- Some banks provide loyalty or bundling discounts. For example, at some banks, if you have a mortgage, credit card and bank account with them, they’ll waive certain charges or monthly account fees.
- If you have an existing relationship with the bank, you’ll have a direct point of contact available to you if you encounter any issues.
Cons
- You might not necessarily get the best deal with your existing bank, as banks can only access and offer their own lending products. This means you’ll need to do the legwork of shopping around and negotiating with other lenders to ensure you’re getting competitive interest rates and terms.
Mortgage broker
A mortgage broker’s job is to find you a lender with the best interest rate and mortgage terms to suit your own unique financial situation. They negotiate on your behalf, as an intermediary between you and a number of lenders.
A mortgage broker will assist you throughout the application process, but the financial institution who provides the mortgage will service your loan: collecting payments and providing customer service.
Pros
- The services of a broker don’t cost you anything, as they get paid commission by the lender when your mortgage is approved and the contract is signed.
- They’ll save you time by doing the comparison shopping for you, often reviewing rates and terms from dozens of lenders.
- Don’t have a gold-star credit rating? Mortgage brokers can often obtain approvals for clients with less than stellar credit scores.
Cons
- Mortgage brokers don’t necessarily have access to every mortgage product at every bank. That means it’s still a good idea to look around on your own to ensure you’re getting the best deal.
Mortgage brokers and mortgage specialists with the banks often work outside traditional “banker’s hours” these days. Many of them will even come to you—whether that’s your home or office—and meet during a weeknight, weekend, or whatever suits your busy schedule. How about a referral to a fantastic mortgage broker? We’ve also got you covered there. Contact us today and we’ll team you up with a talented and trusted professional.
Want to learn more about financial side of building a new home in Saskatoon? Check out our latest guide, Financing a new home: Top 10 things to know.