Mortgage Options

There are several types of new construction financing. You may hire a contractor(s) to build your house, you may build your house yourself or you may buy a newly constructed house.

The following chart breaks down the 3 types of New Construction Financing

 

	Builder/Contract Mortgage (turn key)	Self-Build Mortgage	Builder Completion Mortgage (take out)
Definition	Customer has entered into an agreement with a registered builder to build their home.	Customer wants to act as his or her own contractor. They wish to hire sub trades to complete the work.	Customer requires funds when the home is 100% complete. Mortgages on newly constructed homes, town homes, condominiums.
Mortgage Options	Completion mortgage or a progress draw	Completion mortgage or a progress draw	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.

A Builder Completion mortgage is where the customer has contracted with a builder who is normally developing a community of houses. The customer is to make a downpayment at the time of submitting an offer to purchase the property. Often, the downpayment is required over several payments. Once the house is complete and ready for occupancy the customer will require funds from a mortgage to pay the builder the balance.

Example:

A customer submits an offer to purchase their builder. The total cost of the home is $300,000. It will be ready in 12 months.  Downpayments are due as follows:

• $5,000 With Offer to Purchase
• $5,000 In 30 Days
• $5,000 In 60 Days
• $5,000 In 90 Days
• $280,000 Due on closing date 12 months from now

 In this scenario the customer will pay for the $20,000 from their own 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 also is purchasing the land.

• 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.
• Mortgage Number: Most lenders assign 2 mortgage numbers in a progress draw, one that represents the actual draw of funds and another for the final advance of funds. Once the house is 100% complete and final funds have been advanced, the mortgage number 2 is the “completion” mortgage.
• 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. The full fee amount is paid up front and the premiums are charged at final advance.
• Please note: If the mortgage is changed to a conventional deal or paid out prior to final advance, all premiums owed up to that point are payable.
• Cancellation Fee: A cancellation fee (0.5% of outstanding mortgage amount) applies if the mortgage is paid out prior to the completion mortgage going on repayment. This clause appears in the mortgage documents.

 

Completion Stages  

 With Progress Draws, there are 3 stages to building a house as shown below:

1.  Roof Stage / Roof Tight – Approximately 35% complete.  A survey is required by first draw.
2. Intermediate / Lock Up – Approximately 65% complete (prior to the drywall being installed). If acreage property, the well & septic is required at this stage.
3. Final Occupancy / Completion – Most lenders will not issue final advance unless home is 100% complete (less 3% allowance for seasonal holdbacks). 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 owned details of any charge registered against it
• Full appraisal
• Plans/ House Specifications
• Fire Insurance Certificate
• Third party warranty information, if applicable.

 

Rate Caps

A rate cap locks in the maximum interest rate a customer will receive for their mortgage. The Rate cap is based on the rates at time of application for the selected product, less discretionary pricing. Rate caps are available on all three types of new construction financing for up to 12 months”

A Rate Cap is a guarantee lasting longer than the usual 90 days. When the home completion takes longer than 90 days, HLC can offer a rate cap of up to 12 months.

 

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