Applying for Construction Financing and Breakdown of Construction Draws

CONSTRUCTION DRAW FINANCING

The following is meant to be a general guide to construction financing.  Policies, fees and interest rates will differ for each lender who offers construction financing.

Most lenders will require a complete package when submitting for a construction mortgage approval.

For more information, please contact:

Rosanna Younan

Mortgage Agent # M08004328

Premiere Mortgage Centre

(cell) 416 729-9210

(email) rosanna.younan@premieremortgage.ca

Eligible Purposes:

·                     Purchase from residential home builder

·                     Purchase from a contractor

·                     Self-build home

·                     Renovations or improvements of existing home where there are structural changes or costs exceed the lesser of:

            - 10% of current value or $25,000 (if conventional mortgage)

            - 10% of 'as improved value' or $10,000  (if insured)

Eligible Properties:

·                     Owner occupied only

Land:

·                     Lot upon which home is to be built must meet the lender's residential guidelines & must be fully serviced

·                     If not fuly serviced, the cost to service must be included in the construction costs

Loan-to-Value:

·                     Conventional:  maximum 80% of the lesser of appraised value or cost to construct (including land)

·                     Insured:

            - Purchase: maximum of 95% of the lesser of appraised value or cost to construct

            - Renovation/refinance:   maximum 90% of the completion value

Income Confirmation:

·                     Full income verification required

Required Documentation:

·                     Residential Home Builder: 

            -signed Purchase & Sale Agreement

            -offer to purchase for lot (if not owned); deed (if land is owned)

            -construction specs or plans

·                     Contractor / Self-build:

            -signed construction contract

            -list of cost estimates from various contractors & progress advance worksheet (for self-  build)

            -offer to purchase land or deed

            -construction specs & floor plans

Construction Costs:

When determining the total costs of construction, take into account the costs associated with the following:

·                     land purchase

·                     building cost

·                     site preparation

·                     finishings

·                     soft costs (include non-building costs ie: interest property taxes, legals, permits)

NOTE:  for self-builds, the borrower must have additional resources or ability to carry an additional credit facility equal to at least 15% of the construction costs to cover overruns.

Advances:

·                     borrower's solicitor to register the mortgage for the full authorized amount prior to 1st advance

·                     maximum construction period is 1 yr from application date

·                     funds advanced to solicitor (in trust) in a series of 3 draws (advances) when the construction has reached a predetermined stage of completion. 

·                     4 draws will sometimes be considered

·                     each advance requires authorization from lender / insurer

·                     any encumbrances on the land must be paid & discharged prior to 1st advance (or with proceeds of 1st advance)

·                     solicitor must complete a sub-search on property prior to each advance & title defects must be resolved by the solicitor & borrower before advances can proceed.

Advance Schedule:

·                     First Draw:  construction at least 35% complete (Home is completely closed in or roughed-in.  Foundation, sub-floor, framing, sheathing, roof, roughed-in electric & plumbing.)

·                     Second Draw:  Construction at least 65% complete (interior is completed to drywall stage (taped & finished), should include exterior completion & pouring of basement floor & heating installation.)

·                     Third Draw:  Construction at least 97% complete (Structure fit to be occupied & have finished interior doors, floors, carpentry, painting, heating, plumbing, electrical, walks & driveway)

NOTE:  With 4 advances: first draw can be requested when excavation, backfill & foundation are complete - construction is considered 15% completed.

Lien Holdbacks:

·                     Solicitor will be instructed to hold back a percentage to meet provincial requirements.

·                     These funds are normally released after the solicitor confirms the construction lien period has expired

·                     In Ontario the hold back is 10% for a period of 45 days.

Additional Documentation:

Solicitor will be required to obtain the following prior to releasing the first advance:

·                     builders all-risk insurance assigned to lender

·                     plot plan showing location of all buildings to be constructed

·                     confirmation that all necessary building permits are in place

Solicitor will be instructed to obtain the following prior to releasing the final advance:

·                     occupancy permit

·                     new home warranty certificate