For builders planning a project with a significant residential use portion to the finished product, there can be an opportunity to secure higher leverage institutional loans by being able to qualify for mortgage insurance through the Canada Mortgage and Housing Association (CMHC).
To be even more specific, if the end project will provide rental units in the form of apartments, retirement homes, or nursing facilities, there is a good chance that insured construction financing can be available.
Also, for any development project where the end product will have sales of single family units like condos, townhouses, or stand alone homes, insured construction financing could potentially apply.
Projects that are for residential resale can secure institutional financing as high as 75% of the project value which is determined through a number of CMHC predefined calculations.
For rental projects, the loan to value can get as high as 85% of the project value.
While keeping in mind that higher leverage will also incur a higher insurance premium to cover the mortgage balance. But compared to other forms of higher cost financing that may not even be able to come close to the loan to value ratios that can be attained through an insured mortgage, the cost of insurance will be offset by an overall saving in interest charges.
For condo projects, a key criteria for qualifying for insured construction loans is the level of pre-sales that exist. Depending on the project, pre-sale requirements could range from 50% to 75% of the total units that will be offered for sale.
For development projects like retirement homes and nursing facilities, the insured mortgage loan options are becoming more popular largely because conventional lenders tend to have difficultly approving them for both the construction and long term take out mortgages at any reasonable amount of loan to value ratio.
As a result, CHMC insured mortgages are available for both the construction and long term take out mortgages required for these residential use rental properties
One other project type that can benefit from an insured construction financing project is a mixed use building. As long as the residential use component is at least 20%, these projects can also be financed via an insured construction loan.