Question:

We are preparing to build our house this summer, acting as our own General Contractor. We have talked to some banks and a mortgage company concerning construction mortgages, unfortunately it looks like many of them have no idea as to what they are doing, some don't know their fees, others don't know how things work, etc. etc. Can you be of assistance in recommending someone to further discuss our needs? Your organization possibly? We have our land, many of our quotations, the plans will be complete today, its time to get the ball rolling and prepare to build. Thanks Trevor

Answer:

Trevor, Self-built homes have always been a problem for most lenders. There are several reasons why this is so. Just to give you an idea, here are some reasons I have experienced with clients. As opposed to a builder building a home, a self contractor is more inclined to spend more on the components for after all, it is their own home. If you have ever shopped for windows, doors, plumbing fixtures etc. you will know that there are a wide variety of prices you can pay for the same utility. Consequently, cost overruns are often associated with self-built homes. Cost overruns often mean the lender has to re-qualify you for a larger mortgage and that means more time and paperwork. If building homes is not your normal business, you may forget to cost an integral part of your home or misunderstand a subcontractors quote. For example, if the home is in the country, you may have a quote for the plumbing but not for the pressure system. The well price may be based on a well that is several metres short of the final depth. You may have quoted the cost of the foundation, but when you discover bedrock a foot below the soil surface you did not get the price for hundreds of truck loads of fill for the foundation and septic system. These are just a few items that can contribute to unexpected costs. Another problem encountered by lenders is that it often takes a self-builder longer to build a home than a general contractor. A contractor has to get the home completed on schedule or it affects his profits, a self-builder wants to do a lot of the work his or herself and either due to lack of time (due to full time employment) or lack of experience, it takes longer. Trades are more likely to give a regular contractor customer preference over a one timer if there is a scheduling conflict so the one timer waits longer. The longer it takes from a lender's point of view, the more work there is on the file. I think you get the point. On the positive side, yes, we do finance construction loans but each case is unique in its own right. If you are building in the greater City of Ottawa, to build a modest home you will need $35-50,000.00 cash available to get you through the progress draws. Permits alone will be in the $15,000.00 range before you even break ground. Each draw will be subject to a 10% hold back for mechanics liens as well, so that shortfall will have to be factored in to your cash flow for the project. Most likely, you will have two separate mortgages, one for construction and the other, you final mortgage, to pay out the construction mortgage once the home is 100% complete. If you need more information or want to take this further, I can be reached at (613) 721-0010, my direct line, and I would be happy to help you take this to the next level. John Lozinski

Answered By: John Lozinski

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