When starting the new home construction process under a draw mortgage plan, there are a number of possible setbacks that can crop up over the course of the building year that can cause some serious impediments to the project itself.
Simply because of the heavy involvement of the financing bank in the project, and the risks associated with engaging such a large project as building a new home, a buyer needs to make sure that they have planned in a way that keeps them aware of all the short-fall risks that can impact their purchase. Most importantly, new home builders need to make sure that they are in a position to actually complete the construction of their home, or risk losing access to financing part-way through, and therefore wind up with nothing but a partially completed lot that cannot be lived in.
By far, the greatest risk associated with building a new home is the risk of a ‘shortfall’. Shortfall risk is the risk that a construction project may fall behind in its completion schedule, which means that the project would require additional funds to complete a particular stage of the project. For example, if the process of digging a foundation for a new home build takes a bit longer than initially planned for because of frozen soil, the construction company involved would require additional funds to continue with that particular stage of the project. Read More →