Short answer
A construction mortgage advances funds in stages as the build progresses, with each draw released after an inspection confirms the work completed. Lenders typically finance up to 65% to 80% of the projected completed value, and you pay interest only on the funds advanced. On completion, the loan converts to or is replaced by a standard mortgage.
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Construction Mortgage Overview
A construction mortgage is a specialized type of financing designed for borrowers who are building a new home from the ground up, purchasing a pre-construction property, or completing a major renovation that changes the structure of the home. Unlike a traditional mortgage — where the full amount is advanced on closing — a construction mortgage releases funds in stages (called "draws") that align with the progress of the build.
Because construction lending is more complex than standard residential financing, only a subset of lenders offer these programs, and each has different requirements around builder qualifications, down payment, inspections, and draw schedules. As a licensed mortgage broker with access to 100+ lenders across Canada, I'll match your project with a lender whose program fits how you're actually building.
How a Construction Mortgage Works
Instead of one lump-sum advance, funds are released in scheduled stages as the home is built. A qualified appraiser inspects the site at each stage to confirm the work is complete before the next draw is released. A typical progress-draw structure looks like this:
During the construction period, you typically only pay interest on the amount that has been advanced — not on the full mortgage amount. Once the home is complete and the final draw is released, the loan converts into a standard residential mortgage with regular principal-and-interest payments.
Types of Construction Financing
Not every build looks the same, and there are several construction-financing structures to fit different scenarios:
Qualifying for a Construction Mortgage
Construction lending carries more risk for lenders than a standard purchase, so approval requirements are typically stricter. Common considerations include:
Costs and Considerations
Beyond the standard costs of any mortgage, construction financing comes with a few extras to plan for:
A proper plan built alongside your builder, lawyer, and mortgage broker keeps surprises to a minimum and the project on track.
Why Work with a Mortgage Broker for Your Build
Construction mortgages are not "one size fits all," and lender appetite varies dramatically depending on the province, the builder, and the type of build. Walking into a single bank often means being told either "we don't do that" or being squeezed into a program that doesn't match your project.
As an independent licensed mortgage broker, I have access to 100+ lenders — including banks, credit unions, monoline lenders, and alternative lenders that specialize in construction and self-build financing. I'll review your plans, budget, and builder contract, then match you with a lender whose draw schedule, cost structure, and approval criteria actually fit your build. My service is typically free to residential borrowers, and I'll stay involved from the first draw through to conversion into your permanent mortgage.
Your Step-by-Step Path to Homeownership
Nail Down Your Plans and Budget
Finalize your lot, house design, and a detailed line-item budget with your builder — including permits, design, and a contingency reserve. Lenders review the whole package, not just the mortgage request.
Get Pre-Approved
I'll assess your income, credit, and down payment, then confirm what construction budget and permanent mortgage amount you qualify for based on today's rates and stress test.
Choose an Approved Builder
Lenders vet the builder along with the borrower. I'll help match you with a lender whose requirements align with your builder's licensing, warranty coverage, and track record.
Submit the Full Construction File
The lender's underwriter reviews the signed fixed-price contract, cost breakdown, permits, appraisal, and warranty enrolment before issuing a formal construction mortgage commitment.
Close and Break Ground
You close on the land (if not already owned) and the construction mortgage is registered. Site prep and foundation work begins.
Progress Draws and Inspections
As each stage of the build is completed, an appraiser inspects the site and the next draw is released to your builder. You pay interest only on the funds advanced so far.
Occupancy and Final Draw
Once the home is complete, the final inspection triggers the last draw and any required lien holdback release. Occupancy permits are issued and you can move in.
Convert to a Permanent Mortgage
The construction loan converts to a standard residential mortgage with regular principal-and-interest payments. I'll review the final rate and term to make sure you're set up for the long run.
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Frequently Asked Questions
How much down payment do I need for a construction mortgage?
Most construction mortgages require a minimum of 20% down based on the total project cost, which includes the land, hard construction costs, and soft costs like permits and design fees. If you already own the land, its equity often counts toward the down payment. Some insured programs allow less down for qualifying owner-occupied builds.
Do I make mortgage payments during construction?
During the build, you typically only make interest payments on the funds that have been advanced — not on the full mortgage amount. As each draw is released, the interest portion grows. Once construction is complete and the loan converts to a permanent mortgage, you begin regular principal-and-interest payments.
How are funds released during the build?
Funds are released in stages called draws, tied to specific milestones like foundation, lock-up, drywall, and completion. An appraiser inspects the site before each draw to confirm the work is complete. Most builds use 3–4 draws, though schedules can vary by lender and province.
Can I be my own general contractor?
Yes, but fewer lenders offer owner-builder or self-build programs, and the requirements are stricter. Expect to show relevant experience, a detailed budget, higher cash reserves, and often a larger down payment. I can help identify lenders who work with owner-builders.
What happens if the build goes over budget?
Lenders do not automatically increase the approved mortgage amount, so cost overruns typically have to be covered out of pocket or through a separate approval. This is why a 5–10% contingency reserve is built into a well-structured construction budget from the start.
Is a construction mortgage different from a purchase + improvement mortgage?
Yes. A construction mortgage funds a build from the ground up (or a major structural project) in draws. A purchase + improvement mortgage is used when buying an existing home that needs renovations — the reno budget is added to the mortgage and released once the work is complete, but the home is already habitable at closing.
Does the mortgage convert automatically when the home is finished?
With a construction-to-permanent mortgage, yes — the same loan rolls into a standard mortgage at completion, so there's no second application. With some progress-draw programs you'll re-qualify or select final terms at completion. I'll match you with the structure that best fits your plans.
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