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Understanding New Construction Mortgages

New Construction Mortgage or Progress Draw Mortgage

A new construction mortgage is a type of funding, which is advanced in intervals as the house is being built.  There are usually 3 draws at; 35%, 65% and 100% completion.  Completion is verified at each stage by a progress report from an appraiser. A Land Draw (conventional only) may be required if the customer is also purchasing the land.

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Terms associated with Construction Mortgages

Solicitor: It is important to note that a Progress Draw requires a Solicitor

Progress Inspection Report: Each draw requires a Progress Inspection Report, which details the percentage complete prior to the advancement of funds. The broker will be responsible to contact the appraiser to order the inspection report. They will then forward this on to the lender who will manage the draws after receipt of the Inspection Report.
The same process applies if the mortgage is insured.

Interest on Draws/Advances: Interest is charged on all amounts when advanced and are invoiced, then debited from the customer's account monthly.

Final Advance: The final advance will not be released until the final inspection confirms completion; the final mortgage documents have been signed by the customer and returned to the lender by the Solicitor.

Completion Stages

With Progress Draws, there are typically 3 stages to building a house as shown below:

  • Rough In – Approximately 35% complete.  A survey is required by first draw.
  • Intermediate / Lock Up –.Construction at least 65% complete – When interior is completed to the drywall stage (taped and finished,) this should include exterior completion, pouring of the basement floor, and installation of heating
  • Final Occupancy / Completion –Construction at least 97% complete – The structure must be fit to be occupied and have finished interior doors, floors, carpentry, painting, heating, plumbing, electrical, walks, and driveways
  • Note that draws will be issued based solely on Appraiser’s Percentage Complete Inspection Report

For more information, contact our office directly at 1-800-687-9020