Construction Mortgage in Canada

Construction Mortgage in Canada

A construction mortgage is a financial product offered to home buyers and builders to help with the financing of a construction project. You can opt for a construction mortgage if you’re considering building a new home, villa, cottage, apartment complex, etc. and require structured financing solutions.

A construction mortgage can have its own sets of nuances, in terms of down payment, draw schedules, appraisals, reviews, and processes. You can work with a qualified broker through sHelto to understand the entire process and benefit from the growing Canadian home ownership market. You can build your dream home or residential project through the financing options available through our lending network.

Types of construction mortgages in Canada

There are two types of construction mortgages available in Canada, which you can explore further when you work with the lending institutions. These offer their own sets of advantages to borrowers, as well as certain flexibility in terms of financing your dream project.

Completion mortgage

The completion mortgage is funded when the home is completely built. You can often pay a down payment during the initial stage of the mortgage, according to the terms of the lender, and pay out the remaining amount upon completion. The builder of the project receives payment on the day of possession, instead of receiving it in instalments or scheduled draws.

Progress draw mortgage

In the case of progress draws, the financing is provided upon the completion of certain milestones. The draw stages can be structured similar to excavation & foundation (10-15%), roofing complete (40%), drywall (65%), and so on. This is preferred by some builders as they receive financing during the construction of the project.

The main benefit of a draw schedule or progress draw mortgage is that you can potentially cover the cost of the land and the initial construction development, based on the lending agreement. You can ensure that you’re able to acquire the land as well as make stage-wise financing to complete your dream project with ease.

Benefits of a construction mortgage

There are several benefits of getting a construction loan in Canada, by working with a qualified broker who understands the entire process. Your journey to owning a new property is made that much easier when you understand the core benefits of a construction mortgage.

Data from CMHC even suggests a potential 4.9% growth with a baseline projection of a home sale price to reach $711,429 by the end of the year. Home sale prices are also set to rise periodically until 2026, where demand should see peaks. Several home owners are opting to benefit from projected appreciation, which is why construction loans and land mortgages are highly popular.

Highly structured process

The process of construction loans is highly structured, allowing you to understand the monthly payments, the land cost, the estimated equity, and the construction draw schedules. The pre-qualification process, the documentation required, and the draw schedule can be defined through a structured approach.

Ease of renovation

The process of renovating a newly acquired home or transforming an existing home can be done through a construction mortgage. You can develop your dream home when you have a renovation plan set out for an older property that can look brand new. You can opt for construction financing as well as renovation for interior and exterior work with ease through the construction mortgage.

Lower investment risk

There is a significantly lower investment risk when it comes to financing your construction project when you opt for a mortgage solution. Even when it comes to smaller-scaled projects and self-built homes, you can lower your overall risk by opting for a construction mortgage in many cases. You can also ensure that your home is being built as per the draw schedule and clears all appraisal standards.

Stage-wise

The stage-wise draw schedule is a core benefit for many borrowers so that they’re able to stay on-track for their construction or renovation project. Borrowers can leverage the draw schedule to also understand the capital being provided for each stage of the project. This reduces the variability in payments or projected costs throughout the life of the project.

First draw

Some lenders can allow you to purchase land through the first draw if you don’t already own the land for the construction project. There are several other nuances to the plan, such as you may need to provide 35% of the land purchase price, but generally this is a viable option for someone looking for both land and building ownership.

Rolling over the loan

The construction mortgage loan can be rolled over to a conventional mortgage loan after project completion. This allows the ease of continuing a mortgage solution rather than having to pay an upfront cost through personal financing or other solutions. There is greater flexibility when you opt for the construction to conventional loan.

Whether construction mortgage or conventional mortgage

There are several parameters to consider when it comes to construction and conventional mortgages. You can focus on these parameters to check what works best for you when it comes to investing in a new home in Canada.

For a construction mortgage, you would have to understand the construction draw schedule, the nuances of the progress draw mortgage, and when interest only payments will be applicable. Conventional mortgages are more standardized in how they are structured, with set rates and term lengths.

Goal for project

The goal for the project will determine whether a construction or conventional mortgage is ideal for you. You can choose to opt for a developed home that requires minimal upgrading or changing, allowing for a conventional mortgage to be effective. If you want to develop your home from the ground-up as you see value in investing in the land and the project, then you should opt for a construction mortgage.

Costs associated with construction

A key parameter that can help you make your decision is the total costs associated with materials, labour, planning, excavating, etc. These costs can increase over time, which can be added to the final budgeting for the project. There are also additional costs such as inspection costs, progress inspection fees, appraisal costs, etc. which can be important to weigh when you’re considering purchasing a home or constructing one.

Interest rates

The interest rates may be generally higher for construction mortgages as there may be greater risk involved in financing a new construction development. Lenders may require a higher interest rate depending on the type of project, your credit worthiness, and other parameters. Conventional mortgages generally offer standardized rates for fixed, variable, and hybrid solutions.

Down payment requirements

The minimum down payment for a construction mortgage can be around 25% and above. Depending on your creditworthiness and overall value of the project you can opt for a payment structure or plan to make the payments for the down payment. Also the maximum LTV for construction mortgages is 75% of the value, while for a conventional mortgage it can be 95%.

Budgeting understanding

If there are additional costs associated with completing the project, then the lender may not be able to provide the financing. Your costs can be calculated by understanding the estimates, the contractor costs, and the materials costs, which can be above budgeted markers. When it comes to conventional mortgages, the mortgage is calculated based on the total equity of the home and the down payment. This standardizes the process and helps you budget your monthly mortgage payments.

Risk analysis

When it comes to a traditional mortgage, you don’t have to worry about the construction costs going above budgets. You can focus on the ownership of the house and opt for additional home value loans to help cover the costs of any repair or maintenance. There is lower risk when it comes to conventional mortgages, as there are no construction costs involved in the process.

Flexibility

Construction loans can be converted to conventional mortgages after the completion of the process. This adds a layer of flexibility to the mortgage solution, allowing for a complete mortgage plan. When it comes to traditional loans, there is no flexibility in converting the type of loan from one to another. You can choose a hybrid rate or a fixed to variable rate mortgage plan, but there is no special provision provided for individuals who are constructing their homes.

 

Overview of process for construction mortgages

Our brokers can provide more information with regards to the construction mortgage process, as well as what documentation and approval processes are key to the mortgage. We can help you connect with the right lenders who can specialise in construction mortgages in Canada and provide the right financing.

Eligibility process

The pre-approval stage will include a range of processes to determine whether the construction project can be financed. Your credit score, construction plan, and ability to pay down payment will be analysed during the stage. Your debts, assets, income, and other important documentation will be understood to gauge whether you can be approved.

Approval application

After you have the property plan and a fixed construction contract for your project, you can apply for loan approval through our brokers. The lender can then review the project and provide you with a commitment letter with the terms, as well as the draw schedule. You would have to ensure that the builder understands the schedule so that there are no potential issues.

Draws for financing

The lender will typically release the funds as per the draw schedule, based on the stages of the construction project. A third-party reviewer will be able to analyse the progress of the project and provide the necessary approvals for the releasing of the draw funds. After the inspector’s approval, the work can continue on the project.

Final draw upon completion

When the project has been completed and the occupancy certificate has been provided, then the final draw is given out as per the draw schedule. The final inspection will be done to ensure that the project is designed and developed as per the original plan. The mortgage can then be converted into a conventional mortgage and the owner can live in the house.

 

How do I get started with construction mortgages in Canada?

You can get started with construction mortgages in Canada by connecting with us. We can provide the right strategy to help you acquire the right financing for your construction project. We can help you ensure that you’re able to develop your dream project with the right reviews, lending, approvals, and disbursement strategy.

Our brokers can provide the right expertise when it comes to construction mortgages in Canada as well. This can help you rely on a dedicated partner who can provide more information when it comes to construction processes, as well as providing assistance through all stages of getting financing.

You can reach out to us at 647-620-8000 to start the process.

Construction Mortgage in Canada

A construction mortgage is a financial product offered to home buyers and builders to help with the financing of a construction project. You can opt for a construction mortgage if you’re considering building a new home, villa, cottage, apartment complex, etc. and require structured financing solutions.

A construction mortgage can have its own sets of nuances, in terms of down payment, draw schedules, appraisals, reviews, and processes. You can work with a qualified broker through sHelto to understand the entire process and benefit from the growing Canadian home ownership market. You can build your dream home or residential project through the financing options available through our lending network.

Types of construction mortgages in Canada

There are two types of construction mortgages available in Canada, which you can explore further when you work with the lending institutions. These offer their own sets of advantages to borrowers, as well as certain flexibility in terms of financing your dream project.

Completion mortgage

The completion mortgage is funded when the home is completely built. You can often pay a down payment during the initial stage of the mortgage, according to the terms of the lender, and pay out the remaining amount upon completion. The builder of the project receives payment on the day of possession, instead of receiving it in instalments or scheduled draws.

Progress draw mortgage

In the case of progress draws, the financing is provided upon the completion of certain milestones. The draw stages can be structured similar to excavation & foundation (10-15%), roofing complete (40%), drywall (65%), and so on. This is preferred by some builders as they receive financing during the construction of the project.

The main benefit of a draw schedule or progress draw mortgage is that you can potentially cover the cost of the land and the initial construction development, based on the lending agreement. You can ensure that you’re able to acquire the land as well as make stage-wise financing to complete your dream project with ease.

Benefits of a construction mortgage

There are several benefits of getting a construction loan in Canada, by working with a qualified broker who understands the entire process. Your journey to owning a new property is made that much easier when you understand the core benefits of a construction mortgage.

Data from CMHC even suggests a potential 4.9% growth with a baseline projection of a home sale price to reach $711,429 by the end of the year. Home sale prices are also set to rise periodically until 2026, where demand should see peaks. Several home owners are opting to benefit from projected appreciation, which is why construction loans and land mortgages are highly popular.

Highly structured process

The process of construction loans is highly structured, allowing you to understand the monthly payments, the land cost, the estimated equity, and the construction draw schedules. The pre-qualification process, the documentation required, and the draw schedule can be defined through a structured approach.

Ease of renovation

The process of renovating a newly acquired home or transforming an existing home can be done through a construction mortgage. You can develop your dream home when you have a renovation plan set out for an older property that can look brand new. You can opt for construction financing as well as renovation for interior and exterior work with ease through the construction mortgage.

Lower investment risk

There is a significantly lower investment risk when it comes to financing your construction project when you opt for a mortgage solution. Even when it comes to smaller-scaled projects and self-built homes, you can lower your overall risk by opting for a construction mortgage in many cases. You can also ensure that your home is being built as per the draw schedule and clears all appraisal standards.

Stage-wise

The stage-wise draw schedule is a core benefit for many borrowers so that they’re able to stay on-track for their construction or renovation project. Borrowers can leverage the draw schedule to also understand the capital being provided for each stage of the project. This reduces the variability in payments or projected costs throughout the life of the project.

First draw

Some lenders can allow you to purchase land through the first draw if you don’t already own the land for the construction project. There are several other nuances to the plan, such as you may need to provide 35% of the land purchase price, but generally this is a viable option for someone looking for both land and building ownership.

Rolling over the loan

The construction mortgage loan can be rolled over to a conventional mortgage loan after project completion. This allows the ease of continuing a mortgage solution rather than having to pay an upfront cost through personal financing or other solutions. There is greater flexibility when you opt for the construction to conventional loan.

Whether construction mortgage or conventional mortgage

There are several parameters to consider when it comes to construction and conventional mortgages. You can focus on these parameters to check what works best for you when it comes to investing in a new home in Canada.

For a construction mortgage, you would have to understand the construction draw schedule, the nuances of the progress draw mortgage, and when interest only payments will be applicable. Conventional mortgages are more standardized in how they are structured, with set rates and term lengths.

Goal for project

The goal for the project will determine whether a construction or conventional mortgage is ideal for you. You can choose to opt for a developed home that requires minimal upgrading or changing, allowing for a conventional mortgage to be effective. If you want to develop your home from the ground-up as you see value in investing in the land and the project, then you should opt for a construction mortgage.

Costs associated with construction

A key parameter that can help you make your decision is the total costs associated with materials, labour, planning, excavating, etc. These costs can increase over time, which can be added to the final budgeting for the project. There are also additional costs such as inspection costs, progress inspection fees, appraisal costs, etc. which can be important to weigh when you’re considering purchasing a home or constructing one.

Interest rates

The interest rates may be generally higher for construction mortgages as there may be greater risk involved in financing a new construction development. Lenders may require a higher interest rate depending on the type of project, your credit worthiness, and other parameters. Conventional mortgages generally offer standardized rates for fixed, variable, and hybrid solutions.

Down payment requirements

The minimum down payment for a construction mortgage can be around 25% and above. Depending on your creditworthiness and overall value of the project you can opt for a payment structure or plan to make the payments for the down payment. Also the maximum LTV for construction mortgages is 75% of the value, while for a conventional mortgage it can be 95%.

Budgeting understanding

If there are additional costs associated with completing the project, then the lender may not be able to provide the financing. Your costs can be calculated by understanding the estimates, the contractor costs, and the materials costs, which can be above budgeted markers. When it comes to conventional mortgages, the mortgage is calculated based on the total equity of the home and the down payment. This standardizes the process and helps you budget your monthly mortgage payments.

Risk analysis

When it comes to a traditional mortgage, you don’t have to worry about the construction costs going above budgets. You can focus on the ownership of the house and opt for additional home value loans to help cover the costs of any repair or maintenance. There is lower risk when it comes to conventional mortgages, as there are no construction costs involved in the process.

Flexibility

Construction loans can be converted to conventional mortgages after the completion of the process. This adds a layer of flexibility to the mortgage solution, allowing for a complete mortgage plan. When it comes to traditional loans, there is no flexibility in converting the type of loan from one to another. You can choose a hybrid rate or a fixed to variable rate mortgage plan, but there is no special provision provided for individuals who are constructing their homes.

 

Overview of process for construction mortgages

Our brokers can provide more information with regards to the construction mortgage process, as well as what documentation and approval processes are key to the mortgage. We can help you connect with the right lenders who can specialise in construction mortgages in Canada and provide the right financing.

Eligibility process

The pre-approval stage will include a range of processes to determine whether the construction project can be financed. Your credit score, construction plan, and ability to pay down payment will be analysed during the stage. Your debts, assets, income, and other important documentation will be understood to gauge whether you can be approved.

Approval application

After you have the property plan and a fixed construction contract for your project, you can apply for loan approval through our brokers. The lender can then review the project and provide you with a commitment letter with the terms, as well as the draw schedule. You would have to ensure that the builder understands the schedule so that there are no potential issues.

Draws for financing

The lender will typically release the funds as per the draw schedule, based on the stages of the construction project. A third-party reviewer will be able to analyse the progress of the project and provide the necessary approvals for the releasing of the draw funds. After the inspector’s approval, the work can continue on the project.

Final draw upon completion

When the project has been completed and the occupancy certificate has been provided, then the final draw is given out as per the draw schedule. The final inspection will be done to ensure that the project is designed and developed as per the original plan. The mortgage can then be converted into a conventional mortgage and the owner can live in the house.

 

How do I get started with construction mortgages in Canada?

You can get started with construction mortgages in Canada by connecting with us. We can provide the right strategy to help you acquire the right financing for your construction project. We can help you ensure that you’re able to develop your dream project with the right reviews, lending, approvals, and disbursement strategy.

Our brokers can provide the right expertise when it comes to construction mortgages in Canada as well. This can help you rely on a dedicated partner who can provide more information when it comes to construction processes, as well as providing assistance through all stages of getting financing.

You can reach out to us at 647-620-8000 to start the process.

Review & recommendations

Review & recommendations

Praise Pour In : Clients Share Their Delightful Experiences and Stellar Recommendations

We are dedicated to bringing smile to your face

We are constantly striving to achieve excellence

A Team of experienced professionals you can trust

Let’s stay connected

Receive expert advice & insights from our analysts.

Learn & stay updated with the latest.

    error: Content is protected !!

    Let's have a chat

    Mortgage Agent /Broker in ontario

    We are Hiring