Construction Financing

Building from the ground up? There's a mortgage for that.

A construction mortgage works differently from a traditional mortgage. Funds are advanced in stages as your build progresses.

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What is a construction mortgage?

A construction mortgage is a loan for building a new home that pays out in stages as the work is completed, rather than in one lump sum at closing. The lender inspects the build before each advance, you pay interest only on what's been drawn, and the loan becomes a regular mortgage when the house is done. You need permits, approved plans, a realistic budget and enough cash or land equity to cover costs between draws.

Funds are released in 4 to 6 draws tied to build milestones, each confirmed by an inspection.
Interest is charged only on the amount advanced so far, often as interest-only payments during the build.
Self-build loans are commonly capped around 75% of the as-complete value; land equity can count toward the rest.
The loan converts to a standard mortgage once the home is finished and occupancy is granted.

75%

Common max LTV (self-build)

Typical draw stages

12–18mo

Typical build timeline

65+

Lenders compared

How construction draws work

Unlike a traditional mortgage where you receive all funds at once, a construction mortgage releases money in stages called "draws" as your build reaches predetermined milestones. This protects both you and the lender by ensuring funds are only released as construction progresses. The percentages below are typical ranges; your lender sets the exact schedule.

Land Purchase

15–25%

Initial advance to purchase the lot or equity takeout if you already own it.

Foundation Complete

15–20%

Once foundation, weeping tile, and backfill are done.

Framing & Roof

20–25%

Structure is up, roof is on, windows installed.

Mechanical Rough-In

15–20%

Plumbing, electrical, and HVAC roughed in and inspected.

Completion

15–25%

Final inspection passed, occupancy permit issued.

Example: funding a build on land you own (illustrative)

Assume you own a lot outright worth $250,000 and plan a $550,000 build, for an as-complete value of $800,000. At a 75% loan-to-value limit, the most the lender would advance is $600,000 (75% × $800,000).

Your $250,000 of land equity covers the gap between the $600,000 loan and the $800,000 total, so in this example no extra cash is needed for the down payment. You would still need working cash to pay trades between draws, plus a contingency for cost overruns. If your lot is worth less, or the build costs more, the difference comes from savings.

Construction mortgage vs. traditional mortgage

Feature	Construction	Traditional
Disbursement	Progressive draws	Lump sum at closing
Interest during build	Only on drawn amount	On full amount
Inspections	Required at each draw	Appraisal at purchase
Conversion	Converts to standard at completion	N/A
Rate lock	Typically at completion	At approval

If you're planning smaller improvements to an existing home rather than a full build, a Purchase Plus Improvement mortgage or renovation financing through your current home may be a simpler option. Already own your home and want to fund a lot purchase? Borrowing against your home's value is one way to cover the first draw. Use the mortgage payment calculator to see what the finished mortgage will cost each month.

Is this for me?

✓ You are a permanent resident or citizen of Canada
✓ You've purchased land or plan to build on existing property
✓ You have building permits and approved plans
✓ You're comfortable receiving funds as construction progresses

Builders and contractors with self-employed income have lender programs too. Tell us about your project and we'll outline the documents and draw schedule.

Frequently asked questions

Common questions about building with a construction mortgage.

How does a construction mortgage work in Canada?

A construction mortgage pays out in stages, called draws, as the build reaches set milestones such as foundation, framing and completion. Before each draw the lender sends an inspector or appraiser to confirm the work is done. You pay interest only on the money advanced so far, and the loan becomes a regular mortgage once the home is finished.

How much down payment do I need for a construction mortgage?

It depends on the program and whether the mortgage is insured. Self-build construction loans are commonly limited to about 75% of the finished (as-complete) value, so you need the rest from savings or land equity. If you already own the lot outright, the land's value can count toward your equity.

Do I pay interest during construction?

Yes, but usually only on the amount drawn to date. Many lenders charge interest-only payments during the build, so the payment grows as more funds are advanced. Full principal-and-interest payments start once the mortgage converts at completion.

Who pays the trades between draws?

You do. Draws are released after a stage is complete and inspected, not before, so you need cash or a credit line to pay trades and suppliers until the next advance. Building a cash buffer of a few weeks of construction costs avoids delays.

What documents do lenders need for construction financing?

Expect to provide building permits, approved plans, a detailed cost breakdown or builder's contract, proof of land ownership or the land purchase agreement, your income documents, and a list of your trades or general contractor. Some lenders also require new home warranty enrolment.

Ready to start your build?

Tell us about the land, the plans and the budget. Free to apply, no obligation.

Start your construction application

Best available rate from 8Twelve's lender panel, subject to qualification and lender approval. OAC. Your rate depends on your individual financial situation.