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There are several types of new construction financing.
- Self-Build - you may hire a contractor(s) to build your house or you may build your house yourself.
- Buying From A Builder - buying a newly constructed house.
In the event that home completion takes more than 90 days, rate caps are available for up to 12 months depending on mortgage type and location. A rate cap locks in the maximum interest rate a client will receive for their mortgage, based on the rates at time of application. Rate caps are available on both Progress Draw and Completion Mortgages.
Contact your HLC mortgage professional today to review the details of new construction financing, ask any questions you have and get the professional guidance you need to make an informed decision.
The following chart breaks down the 3 types of New Construction Financing:
Progress Draw Mortgage
A Progress Draw Mortgage means that funds are 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 client is also purchasing the land.
- Each draw requires a Progress Inspection Report, which details the percentage complete prior to the advancement of funds.
- 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.
- The final advance will not be released until the final inspection confirms completion, and the final mortgage documents have been signed by the client and returned to the lender by the lawyer (notary).
Please note – This feature is not available in Quebec.
A Completion Mortgage means that the client has purchased / built their home through a Residential Home Builder and only require funds when the house is 100% complete.
- The client is required 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 client will require funds from a mortgage to pay the builder the balance.
A client submits an offer to purchase their new build. The total cost of the home is $300,000. It will be ready in 12 months. Payments 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 client will pay the $20,000 downpayment 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.
Some Required Documentation For Progress Draw/Completion Mortgages
- Written employment and income confirmation.
- Proof of downpayment 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.
- Cost breakdown of the project from your homebuilder (fixed costs, bids, estimates and allowances).