CMHC Improvement

New construction eligibility criteria

• New construction financing must be approved by CMHC prior to the start of construction, or at an early stage.
• The lender must have control of the entire building during the construction period.
• CMHC-insured financing and any equity in the land must be used to facilitate construction and completion of the project (equity take out is not permitted).
• Condominium construction financing is not permitted.
• Loan advances on vacant land are not permitted.

Acceptable construction arrangements

• Owner-built home
  The borrower:
  • holds title to the land by the first advance
  • performs the work themselves or manages the construction of the home
• Contract-built home
  The borrower holds title to the land by the first advance and has a contract with a single builder to construct the home.
• Homebuilder pre-sold
  The builder retains title to the land during construction. The borrower must have an agreement of purchase and sale for the land and home with a single builder constructing the home before construction begins.

Progress advance options

New construction loans are advanced via the applicable “progress advance” processing option.

• Full service: CMHC validates advances for up to 4 consecutive advances at no cost.
• Basic service: Lender validates advances without pre-approval from CMHC.

New home warranty coverage

A new home warranty must be in place for all new homes. Evidence of enrollment in a recognized new home warranty program is required in all provinces and territories where such programs are available. This requirement applies even if it’s not mandated by provincial or territorial law.

Obtain an occupancy permit if a warranty program is not available or if it is an owner-built home exempt from warranty requirements. Alternatively, get a third-party report from a qualified professional, such as an inspector, architect or engineer, confirming that the construction complies with applicable bylaws and regulations.

Other important considerations

• The purchase price submitted to CMHC must reflect the net GST/HST amount that will be paid by the borrower to the builder/vendor.
• The lender must consider the borrower’s financial capacity to cover cost overruns.
• In the case of chattel loans, specific underwriting policy parameters apply.

Flexible advancing options

• Single Advances
  Used for improvement costs that are 10% or less of the as-improved value.
• Progress Advances
  Used for improvement costs greater than 10% of the as-improved value.
• Full Service: CMHC validates advances for up to 4 consecutive advances at no cost.
• Basic Service: Lender validates advances without pre-approval from CMHC.

Determining as-improved value

For loans involving improvements, the property is assessed on a dual basis:

1. the as-is value (the current market value of the property), and
2. the as-improved value (the market value of the property after improvements), which is used to determine the loan-to-value ratio and down payment requirements.

If proposed improvements are generally accepted to add value to a property, the lender can submit to CMHC the as-is value plus the cost of improvements.

The lending value is the lesser of:

• the as-improved value, or
• the as-is value plus the cost of improvements

You will need documentation to support the as-improved value. Examples include:

• improvement lists and cost estimates
• plans for major renovations, or
• building permit