It is very exciting to build your dream home in Toronto. However, the part about financing your dream house might seem tricky. Many people take construction loans in Toronto to fund the construction of an entire home. After which, they would then change to a typical mortgage. Doing so becomes easy if you know the proper steps. This blog looks at how you can transition from that loan to a mortgage easily and save you that stress.
Short Guide to Construction Loans in Toronto for Beginners
A construction loan is a special type of loan that helps you finance the construction of your own home. A construction loan is different from a typical mortgage loan because it allows you to pay the interest on the loan during the time your house is under construction. The funds from the construction loan are released periodically, depending on the phase of construction of your house. For example, funds are released after the foundation is completed, then after the walls are completed, and so on. Construction loans are given out for 6 to 12 months, depending on the size of your home. Construction loans usually have high interest rates, so always opt to switch to a loan as soon as you build your home.
When Should You Start Planning Your Mortgage?
The secret to a smooth transition from a construction loan to a mortgage is early planning. It is a good idea to start exploring mortgage options 3 to 6 months before your construction loan expires. This will help you in the following ways:
- Check out your finances to see what you can afford.
- Compare mortgage terms across several banks.
- Ensure all your documents are available to avoid delays in the process.
It is a significant advantage if you start the process early. This ensures you are ready and won’t experience issues towards the end. Toronto real estate can move quickly, and being prepared will only prevent stress.
Tell Your Lender Early
The first step is to inform your construction loan lender that your house is almost complete and that you are interested in transitioning from a construction loan to a mortgage. Not all lenders like OMJ Mortgage offer a special loan option called a construction-to-permanent loan. When your house is complete, this loan transitions into a mortgage. This is really convenient since it involves no paperwork. Early communication with your lender will also help them advise and avoid delays.
Get Your Home Checked
Before you can get a mortgage, you must assure lenders that your house is worth lending to. People call this a house appraisal. In Toronto, house appraisals involve several factors, such as the condition of the house, your neighbourhood, and the market prices at the time. This way, you get a proper price for your home, and the lender approves your mortgage.
Pick the Right Mortgage
After an appraiser inspects your house, you should consider construction loans in Toronto that suit your situation. Here are your choices:
- Fixed Rate Mortgage: Your payment will always be the same. This is ideal if you like predictability.
- Variable rate mortgage: You can pay more or less depending on interest rates. You can pay less at first, but later on, you might change the amount you pay.
Consider your budget, risk tolerance, and future goals before deciding on your loan.
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Have Your Papers Ready
Going from construction loans to a mortgage requires the following documents:
- Proof of income, such as tax returns.
- Your credit report.
- Information about your construction project and final costs.
- Home insurance details.
The advantage is that you prepare all documents before the application process, making the process easier and faster.
Close Your Mortgage
Once you review your loan documents and the lender approves your mortgage, you and the lender schedule a closing date. This is also the time when you pay off your construction loan, and your mortgage loan becomes effective. At this point, ensure that everything, including costs and documentation, is in order. With this completed, your mortgage repayments begin, and you have fully financed your property.
A few tips to make the process easier
- Maintain your credit score: Do not make large purchases or take on new debt during this period.
- Be in frequent contact with your lender: This helps prevent surprises.
- Save for additional costs: These may include appraisal charges, legal, insurance, or other expenses.
- Check your home: Make sure you have done everything correctly so there won’t be an issue with the mortgage.
A Smooth Transition To Owning Your Home
Switching from construction loans in Toronto to a mortgage doesn’t have to be confusing. With proper planning and clear communication with your lender, you can ensure everything goes smoothly and you get your new home without any hassle. So, start early, get your documents in order, choose your preferred mortgage with OMJ Mortgage, and celebrate the moment when your dream home finally belongs to you. Contact them now.
