Understanding MLI Select: Construction Process

Introduced in March of 2022, the Canada Mortgage and Housing Corporation (CMHC) MLI Select program offers commercial developers a mortgage loan insurance product focused on affordability, accessibility, and climate compatibility.

The goal of this government-backed initiative is to promote investment in affordable housing for Canadians – something that is needed in the current housing and rental market. For developers, the benefits of using MLI Select include access to reduced premiums, reduced debt service coverage and longer amortization periods, and improved affordability during construction. Existing property owners can also access the program based on program criteria.

How to Qualify for MLI Select

Whether you’re a developer working on a new multi-family construction project or an existing property, you may benefit from the various incentives available under the MLI Select program. Participation in the program is based on a points system that creates an MLI Select score. Points are allocated in three areas:

	Affordability (Rent levels): Points are given based on the percentage of units at 30% of median renter income.
	Energy Efficiency: Based on the existing baseline, decreasing the energy efficiency up to 40% will yield the most points in this category. Performance criteria will vary depending on if the building is new or existing.
	Accessibility: Building must be 100% visitable to qualify, with points being awarded for accessibility and universal design as outlined by Canadians Standards Associate (CSA).

Benefits of MLI for Developers

The greater the amount of points your building obtains, the better your incentives will be, like lower fees and premiums, higher loan-to-value (LTV) ratios, or extended amortizations up to 50 years. The debt service ratio coverage (DSCR) requirement, meaning the company’s net operating income in comparison to its annual debts, remains at 1.1x for each level.

Competitive Pricing	Competitive Pricing Pricing is less than conventional pricing at Prime - % rather than Prime + %
Longer Amortization	Longer Amortization With amortization lengths up to a maximum of 50 years, there is greater affordability for developers
Lower Deposit Requirements	Lower Deposit Requirements LTV and LTC up to 95% mean development can proceed with a minimum equity of 5%
Reduced Debt Service Coverage	Reduced Debt Service Coverage Instead of a DSCR of 1.25x typical in conventional financing, requirements are reduced to anywhere between 1.1x to 1.2x

What Construction Looks Like with MLI Select

If you’re considering starting a new build or updated an existing multi-family property with the assistance of the MLI Select program, you’ll be relieved to know that the actual construction process itself is similar to conventional construction. There are additional documents required to determine eligibility for the program, but the construction process will be consistent with other building or renovation projects you may have undertaken in the past.

Construction Considerations Under the MLI Select Program

	With construction, CMHC requires 50% labour/material and 50% performance bonding on all major contracts. Bonding waivers are no longer permitted, but in some cases, they will now allow a letter of credit or collateral security.
	Accessing funds is based on a drawdown schedule outlined by CMHC. The process is typically one draw every month, with the first draw and last draw reviewed by CMHC.
	With a fixed price general contract, we review the credit worthiness of the contractor or, if working with a project manager, we review the credit worthiness of the 5 major trades (ie. concrete, structural, mechanical, etc.).

Explore the Potential Benefits of MLI Select for Your Project

For projects that qualify, the MLI Select program through CMHC offers a great opportunity to invest in affordable housing with more accommodating lending requirements. To discuss your project and your options, reach out to our Commercial Mortgages Team and we’ll be happy to help.