What you need to know before you begin building.
Building a home is complicated; your low mortgage rate shouldn’t be. There are several types of new construction financing out there, but they fall into three general categories.
- Hire a contractor to build your house
- Build your house yourself
- Buy a newly constructed house
The Three Types of New Construction Financing
- Customer has entered into an agreement with a registered builder to build their home. The builder requires financing draws. Options: Completion Mortgage or Progress Draw.
- Customer wants to act as his or her own contractor. They wish to hire sub trades to complete the work. Options: Completion Mortgage or Progress Draw.
- Customer requires funds when the home is 100% complete.
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 best mortgage rate.
Progress Draw Mortgage
A Progress Draw is a type of funding, which is advanced in intervals as the house is being built. A Land Draw may be required if the customer is also purchasing the land.
- Solicitor: 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. Interest on Draws/Advances: Interest is charged on all amounts advanced and is invoiced, then debited from the customer's account monthly. Final Advance: The final advance will not be released until the final inspection confirms completion.
- Mortgage Insurance: Land draws are not available under CMHC guidelines.
With Progress Draws, there are typically three stages to building a house:
- Roof Stage / Roof Tight – Approximately 35 percent complete. A survey is required by first draw.
- Intermediate / Lock Up – Approximately 65 percent complete.
- Final Occupancy / Completion – Most lenders will not issue final advance unless home is 100% complete. 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 construction mortgage:
- Written employment and income confirmation
- Proof of down payment or equity
- Copies of all quotes (if self-build)
- Signed contract with builder
- Offer to purchase for land or a copy of title
- Full appraisal
- Plans/ House Specifications
- Fire Insurance Certificate
- Third party warranty information, if applicable