Home Construction Loan and a Mortgage: Which to Pick?
Construction loans in Canada
are becoming increasingly popular as more people look to build their own homes.
Of course, you might still be scratching your head, wondering if you should opt for construction loans or go with a typical mortgage. Well, there are a few things to understand before you make that decision, and today, we'll help you make that decision!
Let's talk about construction loans and mortgages, talking about what they are, how they differ, and which one to pick:
What Is a Construction Loan?
A construction loan is a type of loan that helps finance the construction of a new home or another real estate project. Construction loans are typically short-term loans with variable interest rates. This means that the interest rate on a loan may change over time, which can increase or decrease the monthly payments on the loan.
What Is a Mortgage?
A mortgage is a loan that is secured by real estate. In other words, the borrower is using their home as collateral for the loan. If the borrower fails to make their mortgage payments, the lender can foreclose on the home and collect the proceeds from the sale to pay off the loan.
What's the Difference between a Home Construction Loan and a Mortgage?
If you're planning to build a home in Canada, you'll likely need to take out a loan to finance your construction. But between a construction loan and a mortgage, which one should you get? Both have their own advantages and disadvantages, so it's important to understand the difference between the two before you decide which one is right for you.
A home construction loan is a short-term loan that is used to finance the cost of building a new home. These loans are typically used by people who are not able to get a traditional mortgage because they do not yet have a completed home to use as collateral.
The main advantage of a home construction loan is that it gives you the flexibility to finance your construction project as you see fit. You can use the loan to pay for materials, labor, and other costs associated with your project. Once your home is completed, you can then apply for a mortgage and use your home as collateral to get a lower interest rate.
The downside of a home construction loan is that it can be difficult to qualify for. Because you don't have a completed home to use as collateral, lenders will often require you to have a good credit score and a strong financial history.
A mortgage is a long-term loan that is used to finance the purchase of a home. Mortgages are typically used by people who already have a completed home that they can use as collateral.
The main advantage of a mortgage is that it offers a lower interest rate than a home construction loan. This is because the lender has the security of your home as collateral.
The downside of a mortgage is that it can be difficult to qualify for if you have bad credit. In addition, if you default on your mortgage, the lender can foreclose on your home, and you could lose your investment.
So, which loan is right for you? It depends on your individual situation. If you have good credit and a strong financial history, a home construction loan may be a good option. However, if you have bad credit or are unsure about your financial future, a mortgage may be the better choice.
THE BOTTOM LINE
As you can see, home construction loans and mortgages have their uses, and they are both great. But of course, you need to understand your needs thoroughly to know which to pick. Typically, if you're building a home from scratch, a home construction loan is what you'll get. On the other hand, if you already have a home but are adding to it, a mortgage will work! Feel free to compare the various options that are available to you and pick one that will meet your financial needs and allow for maximum savings.
Level Up Mortgages makes it easier for new buyers, real estate investors, and even the self-employed to find the funding they need. If you are looking for conventional or private lending in Canada, get in touch with us today!
See what you qualify for or contact Paul to get your pre-approval.
Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
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