The process of applying and maintaining a builder’s mortgage can be complex and detailed. You’ll need to work closely with your mortgage broker, lawyer, contractor and real estate agent during the process to know more about your obligations. In general, the following considerations should be taken into account when seeking to finance the construction of a new home: The future home must be easy to resell Most approved projects are based on homes that can easily be re-sold, in case things ‘go south.’ That means typical-looking, reasonable-sized homes with rental units, near a city. If you want to build an underground bunker 5 hours from the nearest international airport, you probably won’t get approved for this type of mortgage. That’s an extreme example but, you get the idea. Off-grid cabins in the wild, or houses on 10-acre farms probably won’t fly either. The lender’s cash won’t be available in advance Draw allowances are contingent on work being completed. They are not available for work-to-be-done. In general, a typical draw schedule is drafted as follows: 15% - used towards excavating the land and completing the foundation. This is optional, for insured mortgages only. 25% - used towards roofing and weather protection. The home should be about 40% complete, airtight and secured. 25% - used towards plumbing, electrical wiring, drywall, furnace installation, exterior wall cladding, etc. The home should be 65% complete. 20% - used towards kitchen cupboard installation, bathroom completion, door hanging, tile and floor laying, painting etc. The home should be 85% complete. 15% - used towards all other work on the home, such as exterior and seasonal work. The home should be 100% complete, and ready for occupancy. Further to the above, you’ll need your own cash to pay for contractors and supplies before the lender releases funds via your lawyer, per your agreed-upon schedule of draws. The contractor needs to agree to a similar schedule ahead of time. The lender will check to see that your payment schedule with the contractor doesn’t veer too far off from your draw schedule. The lender will also want proof that you have access to sufficient cash to keep the project moving until draws are released, or in case you go over-budget. Some construction mortgages will only release funds after full completion, and not in stages. These types of mortgages are more common. The contractor must be qualified, and the home must be registered The builder must be part of a New Home Warranty Program (where your project will be registered). They must be able to build according to the National Building Code of Canada. It goes without saying they should be licensed contractors, too. You can act as the builder, if you can prove you have the knowledge and skill to do it. However, even if you do, this will take up a considerable amount of time and energy on your part, which may not be viable. Of course, the quality of your build must meet all the above standards. You may not own the land until the project is complete In some cases, you can buy the lot, and present the title deed to the lender. In other cases, the contractor will own the lot, and agree to pass it to you after they are paid in full. You’ll need to make an official purchase offer to show the lender that this is your plan. If your project goes over-budget, and you don’t pay your builder, they can file a builder’s lien against your home. So, it is critical to avoid going over-budget. There will be additional, out-of-pocket fees to pay for Blueprints, design plans and building permits should be ready-to-go for your mortgage approval. You’ll need to pay for this out-of-pocket. Inspections will be needed to verify each stage of completion, before draws are released. Most of the time, these services will need to be paid for by you. Funds held by your lawyer, from your lender, will always withhold a 10% builder’s lien. This is in case you owe your builder for any outstanding bills at the end of your project. It is required by law. Budgets and plans will be more or less ‘set in stone’ You won’t be able to adjust your mortgage for home upgrades, once it is approved. There may be other means of obtaining funds, if it turns out you do want to make changes that will go over budget. Your mortgage broker can help you investigate your options. Please see more on our website.