Construction financing FAQ

Here are some FAQ about construction financing.

      • Where are my upfront expenses with construction financing?
      • How many draws can I do with a construction mortgage?
      • How much of a lot can I mortgage?
      • Does the Construction Lien Act affect my construction financing?

 

Where are my upfront expenses with construction financing?

 

      • All upfront expenses are your personal responsibility and these costs cannot be part of the construction financing.  For example, plans, permits and project management fees.

 

How many draws can I do with a construction mortgage?

 

      • With construction financing, draws will not be until the construction of the home itself has progressed and only then there has been an increase to the property value.
      • Lenders require a progress inspection from an appraiser for all draws and this cost of this inspection is your responsibility.   Plus, the payment for the inspection is direct to the inspector at the time of inspection.
      • A draw is typically every 45 to 60 days. Also, the lender may request an interest payment if the time exceeds the 45 to 60 day period.
      • Interest is charged on the funds advanced to date.
      • The lender deducts interest and applicable fees from each draw.

 

How much of a lot can I mortgage?
 
      • If you also need lot financing, construction lenders will typically finance up to 65% of the current market value.  And, the 35% down payment will be from your own resources.

 

How does the Construction Lien Act affect my construction financing?

 

      • With construction financing, your solicitor is also working to protect the lender’s interests. They will be protected with reference to the Construction Lien Act, and that the required holdback of funds will apply to all draws.
      • The 10% holdback required by the Construction Lien Act is to be held in the lawyers trust.  And, it is held until 60 days after substantial completion.
      • The lawyer will release the 10% holdback 60 days after a completion report (minimum 97%).
      • For the release of the holdback, the lender must be in possession of a full copy of the occupancy permit.

 

 

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