Construction and builder mortgages

Compare construction mortgage lenders and find the best one to help you build your dream home.

What is a construction mortgage?

A construction mortgage is a loan that helps borrowers finance the construction of their home. It is used to help pay for the building of a new home and is only used during the construction period.

The mortgage funds are released in phases, also known as “draws”, as the home is built. Then, once the construction period is completed, the loan amount is due and a standard mortgage is required on the finished home.

Should you have your own funds to cover the construction costs, you may choose to get a completion mortgage. This mortgage loan is only transferred to you once the construction is complete and may still require a down payment.

Construction and home builder lenders

Not all lenders are the same. Find the right mortgage renewal lender that offers the best interest rates with conditions that meet your personal and financial situation.

Steps to a construction mortgage

Although planning to build your dream home requires a more complicated process, the end result will make it all worth it. To help you better understand the process, see our step-by-step guide to getting a construction mortgage:

Calculate your costs – Determine the project costs and create your home building budget. Consider the vacant land price, labour costs, material costs, and more.

Determine your property’s value – Get an appraisal to determine your property’s end value. You will need to provide lenders with this “as complete” appraised value.

Apply for a mortgage – Shop for lenders and apply for a construction mortgage. Lenders will request for financial information, like debt and income; and project information, like blueprints, construction plans, builder contracts, and proof-of-sale of the lot.

Receive your draws – Progress through the construction stages and receive your construction mortgage funds in installments.

Complete construction – Finish the construction process and receive the remainder of your mortgage funds.

Get your payout statement – Request for a payout statement, or discharge statement, from your lender. This document will indicate the outstanding balance on your construction mortgage.

Switch to a takeout mortgage – Apply for a standard mortgage once the construction of your home is complete. The funds are then used to pay off the construction mortgage lender.

Construction and home builder mortgage frequently asked questions

How do terms work?

A construction mortgage is intended to be used as a short-term interim loan, so it is usually only for the period of construction. Once the construction is complete, you will need to get a takeout mortgage.

What fees do I need to consider?

There are usually many fees associated to a construction mortgage. These fees include lender fees, broker fees, legal fees, appraisal fees, inspection fees, and more.

Do I need to pay insurance premium?

You may be subject to pay an insurance premium depending on your loan-to-value ratio and the number of units in your property.

Are home warranties mandatory?

In certain provinces, the builder will provide home buyers with a third-party warranty. These provinces include British Columbia, Alberta, Manitoba, Ontario, and Quebec. In other provinces and territories, it depends on the individual builder. However, it’s important to note the Canadian Home Builders’ Association requires members to offer a warranty.

Can I add upfront costs into the mortgage amount?

All upfront costs, such as clearing the land after purchase, are your personal responsibility and cannot be added to the mortgage amount.

If I make an unplanned upgrade, can I add that into the mortgage amount?

Once the construction mortgage is signed and approved, you cannot change the mortgage amount, not even to cover any extra upgrades or changes.

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Whether you’re applying for a mortgage pre-approval or financing for your second home, Lenderoo makes it easy to compare your options from coast to coast.

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