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Construction Mortgages

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.

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 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.

Relevant Terms

  • 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