Lucas Munn as the President of Gencorp Homes Inc. is proud to announce the exclusive relationship with Genesis Associates Ltd as the mortgage brokerage of choice, offering financial opportunities to all of GenCorp Homes Inc. clients.
Genesis Associates Ltd. is a mortgage brokerage firm based in Mississauga, with the principle broker Rob Munn B.Sc. being licensed since 1985. Currently under the Mortgage Brokerages, Lenders and Administrators Act, 2006, their license registrations are as follows:
Rob Munn B.Sc.: M080002081 Genesis Associates Ltd: 10295 Broker
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Construction Mortgage Loans:
Are you looking to build your dream home? Not everyone wants to buy an existing house. Some people prefer to have a brand new house constructed instead. If you’re wondering if there are mortgage remedies available for building of a new house, the answer is Yes!
The purpose of a construction mortgage is for home builders who are purchasing or have purchased land, the immediate availability of construction financing for building their principle residence, a cottage or a secondary leisure home for their personal use.
Custom home builders will also need a construction mortgage for their clients, when the client already owns their own land and need financing to cover the immediate, upfront construction costs before the first advance is dispersed by the lender.
What is a Construction Mortgage?
A construction mortgage allows you to draw down from the full amount of the mortgage value, at predetermined stages of the home construction. Construction mortgages are given on a what is called a “progress advance basis”. The full amount that you need to borrow, in order to complete your construction, is given to you in stages – otherwise known as “draws” – as you complete various levels of completion.
If you already own the land you want to build on, a first advance is available as an “equity take-out“. If you have not yet bought the land, a first advance is available to assist you with the purchase of a vacant lot.
Different Types of New Construction Mortgages
There are three different ways you can finance your newly constructed home in Ontario.
Builder/Contractor: You have hired a registered contractor to build your custom home with your own money.
Self-Built Home: You have your home built and act as your own contractor.
Buying a Newly Constructed Home: The contractor builds the home with their own money and you need to pay the builder/owner when you take possession of the property.
Construction Mortgage Financing Options
In each of the above three types of new construction there are various kinds of financing options. There are variations in each one related to timelines and conversion. If you’re looking for construction financing in Ontario, you can build your home with a Process-Draw mortgage, Completion mortgage, or combination of the two.
Advance Stages or Draw Schedule
Below is a common (but not the only) draw schedule used by lenders:
1st Draw: 15% complete Excavation and foundation
2nd Draw: 40% complete Roof is on, building is framed and weather protected (airtight, secure access)
3rd Draw: 65% complete Plumbing and wiring is started, plaster/drywall is complete, furnace installed, exterior wall cladding complete
4th Draw: 85% complete Kitchen cupboards installed, bathroom completed, doors have been hung etc
5th Draw: 100% complete Ready for occupancy with seasonal and exterior work completed
Important Things To Note
Prior to each draw being advanced, an inspector will go to the property to ensure the builder is following the NHW (New Home Warranty) policies and to ensure each stage is completed with accuracy before releasing funds. The cost of the inspections falls on the borrower. Some banks deduct appraisal and progress inspection fees from each draw. Each advance/draw as illustrated above will be subject to a 10% construction lien holdback (refer to the last item of this page for a complete explanation, effective July 1 2018). After your mortgage is approved and signed, you will NOT be able to change your mortgage amount to accommodate any upgrades or changes made to the home
A Completion mortgage is needed if you have built or purchased your home through a residential home builder and only really need the funds when the house is finished and you’re ready to move in. Unlike a Process-Draw mortgage, with a Completion construction loan, you typically only need a small down payment to start and only need full payment when the home passes the final inspection.
Steps to Securing a Construction Mortgage
- We meet with you to assess your construction financing needs.
- Based on these needs, we put together a solution that includes details of the loan, payment structure and all expenditures relevant to obtaining the loan are discussed at this stage.
- You submit the required documents to Genesis Associates Ltd.
- We will reconfirm the terms of the loan with you. Note that terms are subject to change if a discrepancy is found in the submitted documents. Genesis Associates Ltd will require an appraisal report upfront.
- A Commitment letter will be provided confirming all the previously discussed terms is issued.
- You sign the commitment after reviewing the document with your lawyer. Remember, your lawyer represents YOU!!
- Appraisal is completed. This is paid by the borrower and if the value determined is lower than anticipated, the loan amount may decrease.
- You are required to obtain ILA (Independent Legal Advice) with your lawyer and based on the lender’s requirements. Final mortgage documents are signed after the ILA.
- The signed mortgage documents are then sent to the solicitor acting on behalf of the lender. Upon satisfactory review of the documents the first draw based on a pre-determined amount and closing date, will be funded after the mortgage has been registered on the property as the security for the lender.
Construction Lien and Holdback Rules (effective July 1 2018)
A construction lien is a charge or security on a property that can be registered on title to the property by anyone who has supplied services or materials to improve the property.
A holdback is a requirement that all owners, contractors and subcontractors withhold 10% of the cost of the services or materials they supply on a project. This helps to make sure that there is enough money to satisfy any lien claims that may come up.
Amendments to the construction lien and holdback rules and related regulatory changes came into force on July 1, 2018. From the Ministry of the Attorney General: Ontario, you can find a chart describing some of the key changes here.
Some of the key changes include:
- Language in the legislation has been clarified to better reflect large-scale, public projects that have multiple owners.
- Contractors and subcontractors have 60 days to register a lien and 90 days to start a court action.
- Contractors and subcontractors have to follow specific bookkeeping rules to protect subcontractors in the event of bankruptcy.
- Public sector owners, such as the Crown, municipalities and broader public sector organizations, are required to have a surety bond on public contracts above a prescribed amount, and alternative financing and procurement arrangements (AFPs) are subject to a minimum coverage limit. to protect subcontractors and workers if the general contractor files for bankruptcy.
- Condominium unit owners are allowed to remove liens from their unit that are related to improvements to the common elements, such as corridors, lobbies, the garage and the roof.
- Project owners and other payers are required to pay contractors and subcontractors holdbacks once the timeline to file liens has passed. This helps contractors and subcontractors plan, accept contracts for new work and have more certainty about when the holdback will be paid.
- Construction laws will include a prompt payment system to make sure that contractors, subcontractors and workers are paid on time.
- Owners and general contractors must agree to a deadline to submit an invoice. If they do not agree, the contractor will be required to submit invoices to the owner on a monthly basis.
- Owners will be required to pay general contractors within 28 days after the contractor receives the invoice from the owner.
- General contractors have to pay subcontractors seven days after receiving payment from the owner.
- Subcontractors have to pay other subcontractors within seven days of receiving payment from whomever hired them for the project.
- Contractors and subcontractors will have a right to charge mandatory interest on late payments beginning when the amount is due. Interest would be the prejudgment rate determined under the Courts of Justice Act or the rate set out in the contract or subcontract, whichever is higher.
In cases where there is a dispute about the amount owed or the quality of the work:
- owners will be permitted to deliver a notice of non-payment to the contractor within 14 days of receiving the invoice from the project owner
- contractors will be permitted to deliver a notice of non-payment within seven days to the subcontractor
- subcontractors will be permitted to deliver a notice of non-payment within seven days to other subcontractors they hire
Resolving a dispute
Effective October 1, 2019, a new adjudication process will give people and businesses an alternative to going to court to resolve payment disputes.
The key features of the adjudication process are as follows:
- Adjudicators will be experts with extensive experience in the construction industry and experience or training in dispute resolution
- The Authorized Nominating Authority (Authority), will oversee the new interim adjudication regime by developing and overseeing training and qualification for adjudicators, maintaining a registry of qualified adjudicators, and performing other duties and services outlined in the legislation and supporting regulations
- Disputes will be heard by an adjudicator from the registry of adjudicators, who may be selected by the parties or by the Authority
- The parties and the adjudicator may agree to the fees of the adjudicator. If they do not agree, the fees will be determined by the Authority in accordance with a fee schedule published on the Authority’s website.
- The adjudicator will issue a determination in approximately six weeks, which will be binding on the parties, on an interim basis, until the dispute has finally been resolved in court or arbitration, or by agreement of the parties. If the parties are satisfied with the determination, they may agree to treat it as final.
Further information about the role of the Authority is outlined below.
If, after adjudication, the individual or business owing money refuses to comply with the determination, the party that is owed the money has the right to:
- stop work under the contract
- charge mandatory interest on late payments
- enforce the adjudicator’s determination by filing a certified copy in the Superior Court of Justice.
The adjudicator’s determination cannot be appealed, but it can be challenged on certain grounds, such as adjudicator bias.
To support the changes, the government made four regulations to:
- prescribe various forms
- set out the court procedure for construction lien actions
- establish monetary thresholds for surety bonding and holdback and the requirements for publication of notices
- outline adjudication processes and the requirements for the Authority.
The regulations are published on e-Laws, and each form is available online.
When changes come into effect
The changes take effect as follows:
- The amendments to the construction lien and holdback rules and related regulatory changes came into force on July 1, 2018
- The prompt payment and adjudication processes, the amendments related to liens against municipalities, and related regulations will come into force on October 1, 2019.