Construction Loans

Mortgage Options

Building a home is complicated; your mortgage shouldn’t be. There are several types of new construction financing out there, but, they basically fall into 3 categories.
  1. You may hire a contractor to build your house
  2. You may build your house yourself
  3. You may buy a newly constructed house
The 3 types of New Construction Financing

1) Builder/Contractor built home with your money
Customer has entered into an agreement with a registered builder to build their home. 
The builder requires Financing Draws.
Mortgage Options: Completion Mortgage or Progress Draw

2) Self-Built Home
Customer wants to act as his or her own contractor. They wish to hire sub trades to complete the work.
Mortgage Options: Completion Mortgage or Progress Draw

3) Builder built home with their money
Customer requires funds when the home is 100% complete. Mortgages on newly constructed homes, town homes, condominiums.
Mortgage Options: Completion Mortgage

Completion Mortgage 
You have purchased / built your home through a Residential Home Builder and only require funds when the house is 100% complete (sometimes they require a small deposit to start). This is simply a regular mortgage.
A customer submits an offer to purchase their builder. The total cost of the home is $500,000. It will be ready in 12 months. Down payments are due as follows:
    • $1,000 With Offer to Purchase
    • $24,000 once financing condition is met
    • $475,000 Due on closing date 12 months from now.
In this scenario the customer will pay for the $25,000 from their resources and will only require a mortgage upon closing. This is a single advance mortgage and is the same as a normal residential mortgage.

Progress Draw Mortgage
A Progress Draw is a type of funding, which is advanced in intervals as the house is being built. 
There are usually 3 draws at; 
  • 35%, 
  • 65% and 
  • 100% completion. 
A Land Draw (conventional only) may be required if the customer is also purchasing the land. 

Relevant Terms and what they mean for a Construction Mortgage
Solicitor: It is important to note that a Progress Draw requires a Solicitor

Progress Inspection Report: 
Each draw requires a Progress Inspection Report, which details the percentage complete prior to the advancement of funds. The broker will be responsible to contract the appraiser to order the inspection report. They will then forward this on to the lender who will manage the draws after receipt of the Inspection Report.
The same process applies if the mortgage is insured. The lender will forward the inspection report on to CMHC
Genworth Financial Canada (Genworth) will perform its own inspection

Interest on Draws/Advances: Interest is charged on all amounts advanced and are invoiced, then debited from the customer's account monthly. Debiting takes place on the first of each month and a statement is forwarded to client within first 2 weeks of the month.

Final Advance: The final advance will not be released until the final inspection confirms completion, the final mortgage documents have been signed by the customer and returned to the lender by the Solicitor.

Mortgage Insurance: Land draws are not available under CMHC guidelines.

Completion Stages With Progress Draws
there are typically 3 stages to building a house as shown below:
  • Roof Stage / Roof Tight – Approximately 35% complete. A survey is required by first draw.
  • Intermediate / Lock Up – Approximately 65% complete (prior to the drywall being installed). If acreage property, the well & septic is required at this stage.
  • Final Occupancy / Completion – Most lenders will not issue final advance unless home is 100% complete (less 3% allowance for seasonal hold backs). Seasonal holdbacks are always minor, exterior to property and weather related.
  • Note that draws will be issued based solely on Appraiser’s Percentage Complete Inspection Report
Required Documentation for a Builders Mortgage:
  • Written employment and income confirmation 
  • Proof of down payment or equity
  • Copies of all quotes (if self-build) 
  • Signed contract with builder and all addendums, if applicable 
  • Offer to purchase for land or a copy of title if already owned
  • If land is owned, details of any charge registered against it 
  • Full Appraisal 
  • Plans/ House Specifications 
  • Fire Insurance Certificate 
  • Third party warranty information, if applicable