There are so many options... Paint colour, floor tile or hardwood? Knocking down a wall, building an addition, tear down and rebuild?

...but what about the financing?

There are two main programs that can help you build your dream home: Purchase-Plus-Improvements Mortgages as well as Progress Advance (a/k/a Construction Draw) Mortgages. These programs have evolved to help put your construction dreams within reach!

If your goals involve small scale improvements up to 10% of the value of the property's current value, then the Purchase Plus Improvements Mortgage is for you! With this program, you are able to acquire the home with a total of 95% financing based on current (as-is) market value and increase the home's value by up to 10%. Once you have completed the renovations, your lender will assess the property and then reimburse you for the costs that you have incurred in the construction process.

It is common for lenders and the mortgage insurers to request a list of the planned renovations, finish package items and contractor estimates for the work that you intend to complete yourself and/or have done to the property.

A similar product, the Progress Advance (a/k/a Construction Draw) Mortgage can be used for either the construction of a new home, major renovations to a home or the increasingly common process of teardown and rebuild of infill properties.

Where the increase is greater than 10% of the as-improved value, the advancing options for new construction apply. The standard thresholds for completion of work and advancing funds to you are:

• 33-40% complete (foundation in, framing stage complete)
• 60-65% complete (lockup stage, all windows and doors are in)
• 80-85% complete (finishing stage, if required)
• 85-100% (completion, if required)

With projects of this scale, it obviously requires a higher level of organization and planning; lenders and their respective mortgage insurers will request some, if not all of the following items to fairly assess the scope, timeline and cost of the project that you are rolling out:

• Development plans, architectural renderings
• Site survey, environmental land assessment
• Builder, General Contractor, Sub-trade estimates for cost, timing, etc.
• Appraisal of property, project
• Building specs
• Business plan

The lender will assess the value of the value of the property and the project as a whole. Your Loan-To-Value and Down Payment percentage requirements are based on as-improved value. The as-improved value is used to determine maximum loan amount (maximum LTV varies by product and number of units).

Some common construction structures that borrowers use to achieve their project goals through the Progress Advance (a/k/a Construction Draw) Mortgage.

Individual Borrower: The borrower owns the land prior to start of construction, and has a contract with a builder to construct the unit.

Self-built: The property is registered in the name of the borrower who does the work or contracts with one or more subcontractors to build or renovate the property. The borrower will ultimately occupy the property.

Homebuilder Pre-sold: The builder retains title during the course of construction.

The Approved Lender advances directly to the builder during construction. The builder does not start construction until an agreement of Purchase and Sale for the land and unit has been finalized with the future homeowner (i.e. mortgage loan insurance applicant).

New Home Warranty Coverage

Builders and contractors are required to be registered with a CMHC recognized new home warranty provider and have enrolled the building in the same program, where new home warranty coverage is available. Owner-builders are exempt.

source: www.cmhc.ca

CRA Tax Credits

For the 2009 tax year, the Canada Revenue Agency has announced that homeowners that do renovations and upgrades to their primary residences are eligible for a tax credit to help them along the way... to learn more, please find a CRA Home Renovation Q&A walkthrough here!