Construction mortgage is a short term mortgage that is utilized to finance the construction of a real estate project. It can be utilized by homebuyers, builders and developers who plan to build single or multi family homes, office buildings or industrial sites.
There are various requirements for a construction loan, the most prominent one being credit score and credit history. The credit score and history of an applicant heavily influence whether they are eligible for a construction loan in Canada.
Required Credit Score for Construction Loan
Approval for construction loan is harder to come by than a regular mortgage in Canada. The requirements for construction loan are generally higher than that of a traditional mortgage. This is because construction financing in Canada can be very risky for a lender. Since you are borrowing to construct real estate, the property to hold as collateral for the lender is not yet constructed, which is why some lending firms do not offer construction financing.
As with all mortgages, the minimum credit score, maximum debt-to-income ratio and down payment required for a construction loan will vary from lender to lender. In most cases, these requirements are based on the amount of money you borrow.
The most important requirement for construction financing is the borrower’s credit score. A credit score is a three-digit number that represents a borrower’s creditworthiness. It is the first thing that lenders check when you apply for a mortgage or any other financing. It gives them an understanding of whether you can repay the borrowed sum on time or not.
Higher scores tend to correspond with better rates and can help you get a decent construction mortgage in Ontario. Hence, it is important to maintain a good credit score. Most construction loan lenders have a minimum credit score requirement of 660 or higher.
Since the average credit score in Canada is around 650, the requirements for construction financing shouldn’t be hard to come by if you have a good credit history and an accurate credit report.
If you meet the requirements for construction financing and have the right credit score, getting approved for a construction loan shouldn’t be a problem. However, if you are facing financial issues and don’t have an ideal credit score, you should consider a lender that caters to your needs.
Many borrowers have a history of debt and unpaid taxes, both of which can negatively impact your credit score. If this is the case, with the right lender, you can still get the financing you need.
Freedom Capital is a unique mortgage brokerage in Canada that caters to borrowers outside the traditional lending box. If the banks said no, or if you are facing difficulties and delays with your construction mortgage, contact us at Freedom Capital today!