"I would like to take this opportunity to thank Karen for helping us out in our time of need.  We found ourselves in an extremely uncomfortable position at the tail end of a bull market in real estate.  We were having our dream built and it became time to sell our existing residence.  The market took a downturn and our possession date was looming without an offer.  We stood to lose our new dream home as well as an enormous deposit. After speaking to my banker with whom we had dealt for seventeen years, he had no solutions or offers to assist my predicament.  So I got on the internet to see if I could find some help there. I found Karen’s website and dialed her number.  After explaining our situation to her she told me there were options available to us and that she would make some inquiries and get back to me within two days.  Just over twelve hours later she called me back informing me of three different mortgagers that could provide us a solution.  We met with Karen to go over the details and made our selection.  It was that easy.  All we can say now is ‘thanks Karen’  - R & K Moen

Construction draw mortgages are for customers purchasing Land or requiring equity take-out on land for immediate construction of a principal residence or cottage and leisure home for their own personal use.

Eligible properties:

• Land must be zoned for residential or vacation home use
• Owner-occupied principal residences (4 units or less)
• Single family cottage/leisure homes
• New construction must conform to the National Building Code
• New Home Warranty Program contract registration required

Maximum Loan to value:

• Insured: 95% loan to value
• Uninsured: 80% loan to value

Please note when the financing requested is low relative to the building costs (i.e.: a lower Loan to value ratio), the first advance may be inadequate due to the requirement to hold back sufficient funds to complete construction.  There percentage of completion may have to be at least at a minimum standard (i.e. 25%), before the first advance occurs.  You have to inject all of the equity you want to use before qualifying for an advance.  If the estimated advances appear insufficient during the early stages of the construction, it may be prudent to obtain approval for a larger mortgage than needed, to allow for adequate progress draws.

Most lenders require the Builder/contractor must be a member of an approved New Home Warranty Program (NHWP) other than a self-builder.

The advance stages:

There can be 4 or 5 draws depending on what you are requesting.  An optional advance equal to 65% of the vacant land lending value can be request to assist with the purchase of the building lot or as equity take out on already owned land to assist with building start up costs. The typical Advance Schedule is as follows:

Draw 1 – Excavation and foundation is complete – 12 -15% if work is being done on framing can go to 25%
Draw 2 – Roof Shingled; framed; sheathing; doors & windows in; rough plumbing & electric; insulated & vapor barrier; basement floor completed.  This is commonly referred to as the “locked up “or “Air Tight” stage.  Uninsured only – advance based on construction value added or 65% of vacant land value, whichever provides the great amount.
Draw 3 – Plaster or drywall competed, furnace installed and working, exterior walls completed. 65-70%
Draw 4 – Trim work completed; kitchen cabinets/cupboards installed; bathroom tile and glazing completed: interior doors hung – 85%
Draw 5 – House completed – 100%

At each stage a specific percentage of the building funds are advanced based on a cost to complete basis and always supported by an inspection report from an approved appraiser. Funds are directed to the borrower’s lawyer (insured loans only) who insures that the appropriate construction lien holdbacks are maintained, prior to releasing funds to the Borrower or builder. 

During the course of construction, advances are based on the lesser of the market value of the work in place or the cost to complete.

Lien hold backs:

There are several types of holdbacks, which may be applicable to newly constructed properties whether funds are advanced on completion or progress advances are made. The holdback requirements will vary from province to province.  The solicitors acting on the behalf of the lender will insure that the appropriate construction lien holdbacks are maintained, prior to releasing funds and must comply with the lenders policy and provincial legislation as referred to.

The following type of holdbacks may be applicable to newly constructed properties:

• Lien holdbacks
• Cost to complete holdbacks
• Seasonal deficiencies holdbacks; and
• Satisfactory purchaser holdbacks (if any) as indicated on the Offer to Purchase agreement.

The definitions of each hold back is in the glossary click here

Self Build:

Borrowers who consider themselves qualified to build their own homes should have industry knowledge and be prepared upon request, to submit a resume substantiating construction knowledge, industry contacts and references.  Additionally:

• Borrowers should have sufficient resources, cash or independent lines of credit available to ensure the applicant has the financial wherewithal to carry the construction to the first draw.
• Borrowers should have the ability to absorb cost overruns up to 15% of the budgeted construction costs of the home.  This may be in form of cash reserves or ability to cover higher servicing should the mortgage need to be increased up to 15%.

You are looking at a term of 9 months to 1 year to complete the construction of the new home.  At that time you would be charged Bank Prime + 1% or the 1 year closed mortgage rate.  You will pay interest only on advanced funds which will be due monthly and debited automatically from your bank account.  There is usually a set administration fee with the lender per advance which is deducted from each advance. ($150.00  to a total of $500.00).  The appraisal cost will also be at the clients cost as well and this will vary in each place so get a quote.