A Residential Construction Draw Mortgage in Peterborough, ON, is a specialized type of financing designed to fund the construction of a new home or a major renovation from the ground up. Unlike a traditional mortgage, which requires you to receive the full loan amount upfront, a construction draw mortgage disburses funds in stages as construction progresses.

How a Construction Draw Mortgage Works (The "Draw" Process)

The core of a construction draw mortgage is the "draw schedule." This schedule, agreed upon by you and the lender, outlines specific milestones for releasing funds. Before each "draw" (release of funds), an appraiser or the lender's representative typically inspects to ensure that the work meets the agreed-upon standards and that the project is on track.

A typical draw schedule might look like this, with percentages representing the completion of work and the corresponding percentage of the total mortgage amount released:

• 1st Draw (e.g., 15-20% completion): Excavation, foundation, and subfloor completed. You'll typically need to fund this initial stage yourself or through other means before the first draw.
• 2nd Draw (e.g., 40% completion): The framing is complete, the roof is on, and the building is watertight ("lock-up" stage).
• 3rd Draw (e.g., 65% completion): Rough-ins for electrical, plumbing, and HVAC, as well as insulation and drywall.
• 4th Draw (e.g., 85% completion): Interior finishes like cabinets, flooring, and fixtures are installed.
• Final Draw (e.g., 100% completion): All interior and exterior work, including landscaping and driveway, is finished, and the home is ready for occupancy.

During the construction phase, you typically make interest-only payments on the funds that have been disbursed so far. Once the construction is complete and the final draw is released, the construction mortgage often converts into a traditional principal and interest mortgage, or you secure a separate "take-out" or "completion" mortgage to pay off the construction loan.

Key Requirements and Considerations

1. Detailed Plans and Budget: Lenders require comprehensive architectural plans, a detailed construction budget, and a timeline for the project.
2. Builder Qualification:
   • Professional Builder: If you're hiring a general contractor, the lender will vet their experience, financial stability, and track record. Many lenders prefer or require a professional, licensed, and insured builder.
   • Self-Build: If you plan to act as your own general contractor ("self-build"), you'll need to demonstrate significant experience in construction and project management. Lenders may require additional oversight or third-party monitoring for self-build projects.
3. Down Payment: Expect a larger down payment than for an existing home. Typically, 20% to 35% of the total project cost (including land and construction) is required.
4. Property Appraisal: The loan amount is based on the projected appraised value of the home once it's completed, not its current value.
5. Land Ownership: You either need to own the land outright, or the first draw might include funds for its purchase, but you'll still need to cover a significant portion of the land cost as a down payment.
6. Personal Qualification: Lenders will assess your personal credit score (typically 680+), income, and debt-to-income ratios.
7. Contingency Fund: It's highly advisable to have a contingency fund (e.g., 10-15% of the total budget) for unexpected costs or delays.
8. Interest Rates: Construction mortgages often have slightly higher interest rates than traditional mortgages due to the increased risk involved.
9. Two Payments: Be prepared that you might be making payments (e.g., rent or mortgage on your current home) while also making interest-only payments on the construction loan.

Finding a Residential Construction Draw Mortgage Broker in Peterborough, ON

Working with a mortgage broker experienced in construction financing is essential. They understand the specific requirements of various lenders and can help you navigate the complexities of the draw process.

Here is a mortgage broker and financial institutions serving Peterborough that specialize in or offer residential construction draw mortgages:

• Mortgage Broker in Peterborough | Mike Cara: Mike Cara's website explicitly mentions "Construction Draw Mortgages" in Peterborough, Lindsay, and across Ontario. This is a strong indicator of their expertise.
• • Address: 398 McDonnel St., Unit 4, Peterborough, Ontario, K9H 2X4
  • Phone: 705.772.7878
  • Website: mikecara.ca/index.php/durham-region-peterborough-construction-draw-mortgages
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• Major Banks (RBC, TD, CIBC, Scotiabank, BMO): All major Canadian banks offer residential construction mortgages. You can inquire directly with them, but a broker might provide more options and compare offers.
  • For example, RBC and TD Bank explicitly detail their construction mortgage products on their websites.
  • Meridian Credit Union and Kawartha Credit Union also offer construction mortgages and Purchase Plus Improvements options (for renovations). Local credit unions can be excellent resources.

Recommendation:

Your best first step is engaging with a mortgage broker in Peterborough with a strong track record in construction financing.

They can help you:

1. Assess your eligibility: Determine your borrowing capacity based on your income, credit, and the project's estimated value.
2. Review your plans: Help ensure your budget and plans are comprehensive enough for lenders.
3. Connect you with suitable lenders: Access conventional and potentially alternative lenders offering construction draw mortgages.
4. Guide you through the draw process: Explain what's required at each stage to ensure smooth fund disbursements.

Be prepared to provide all necessary documentation regarding your finances, the land, your chosen builder (or your own self-building experience), and the detailed construction plans and budget.