Construction Financing

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Construction Financing

LAND

For a fully serviced lot, you will need down payment of at least 25% on the land value. Fully serviced means the lot has power, water/well & sewer/septic.

For a partially serviced lot, you will need a down payment of at least 35% on the land value. Partially serviced means the land is missing at least one of the above services.

Already own the land?

An equity take out may be completed on the land as your first draw, up to 75% of the appraised land value, less fees.

REQUIRED DOCUMENTS FOR PRE-APPROVAL

Building Plans
Cost estimate sheet from your builder
Signed building contract
All other income verifying documents from applicants ie: T4's, Taxes, Job Letters, Pay Stubs, Bank Statements, etc.

APPRAISAL

A construction appraisal will be required as part of the financing process. It confirms the following:

The current value of your land.
The as-completed value of your new home, based on your construction drawings and builder's cost worksheet.
Future potential rental income (if applicable).

Flawless Financing will order the appraisal on behalf of the lender.

HOW IT WORKS

Construction mortgages are cash-intensive. You must fund the project first with your own money to add value, then the bank reimburses you a percentage of those costs at various stages of the construction. An inspection is required at each stage before funds are released.

Your construction financing is broken into 4 or 5 stages (draws) and is funded on a cost-to-complete basis.

Costs are reimbursed to you at various stages throughout your build generally at a reimbursement rate of 65% of the budgeted costs, not incurred costs. At your final draw (completion), up to 95% of your budgeted cost is reimbursed.

Lenders will require proof of the following funds available:

25% down payment for serviced lot or 35%+ down payment for partially serviced lot
25% of budgeted build costs (per builder's cost worksheet)
10% of appraised end value of construction (to buffer for cost overruns)

Additional construction documentation required:

Building permit
Course of construction insurance
Home warranty insurance/HPO
Health permits (if applicable)
Occupancy permit at completion

FAQ'S

When do I have to start making payments on the construction mortgage?

Once your first draw is made, interest accrues at a rate as low as Prime + 2% and payments remain interest-only during

construction. Interest only payments are made on the funds that have been advanced at any given time.

What if I already have a land mortgage?

If you have recently purchased a lot and are making mortgage payments on the land, you would continue making those (per your existing mortgage commitment) until your first draw is made, which will pay out the existing mortgage on the land.

Can I use a secured line of credit (HELOC) to finance my construction?

Yes, keep in mind any borrowed money will be factored into your debt servicing ratios on your pre-approval.

Can I use gifted funds from family?

Yes, proof of funds deposited along with a signed gift letter must be provided.

Why does the bank only reimburse 65% of the estimated cost at each stage?

It's no secret, cost overruns on new construction are a common occurrence. Your lender must mitigate their risk on a partially completed home. This is done by reimbursing only a percentage of estimated costs until the final stage.

How long are terms on construction mortgages?

Construction loans are generally offered on a 9-18 month term.

If property transfer taxes must be paid up front, how does that work with new construction?

Please consult your lawyer or notary for any questions regarding PTT.

Are there any other fees to be aware of?

Yes, additional additional fees can include but are not limited to: