How do construction mortgage draws work?

The lender releases funds in stages as construction milestones are completed. Before each draw, an inspector verifies the work is done. Common draw stages include foundation, framing, mechanical (plumbing, electrical, HVAC), drywall, and completion.

Do I need to own the land first?

Usually yes, though some products include land purchase financing. Most commonly, you purchase land separately (sometimes with a land mortgage), then arrange construction financing for the build.

What down payment is required?

Construction mortgages typically require 20% to 25% of the total project cost (land plus construction). The equity may come from the land you already own plus additional cash.

Can I act as my own builder?

Some lenders will finance owner-builder projects, but options are more limited and scrutiny is higher. You'll need to demonstrate construction knowledge or have a detailed plan for managing trades.

What happens if construction costs exceed the budget?

Cost overruns are a significant risk in custom building. We recommend building contingency into your budget (10-15%). If costs exceed financing, you may need additional funds from savings or potentially a revised loan.

What is a completion mortgage?

The completion mortgage (or take-out mortgage) replaces the construction mortgage once the home is complete and has occupancy. It's a standard mortgage with regular terms, rates, and payment structures.

SERVICE

Construction financing for custom homes.

Building a custom home requires financing structured around construction phases rather than a single closing. Understanding progress draws and completion mortgages is essential.

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Building a home unfolds over months — financing must match that rhythm.

OVERVIEW

How does construction financing differ from a standard mortgage?

Construction financing differs fundamentally from purchasing an existing home. When you buy a completed property, funds are exchanged once at closing. Building a custom home requires funds released progressively as construction advances — foundation, framing, mechanical, finishing. This structure, called a construction mortgage or progress draw mortgage, protects lenders by ensuring money flows only as value is created.

The typical construction mortgage involves a series of draws, usually four to six, released upon inspection confirming each phase is complete. You typically pay interest only on drawn amounts during construction. Once the home is complete and occupancy is obtained, the construction mortgage converts to or is replaced by a standard mortgage (the completion mortgage or take-out mortgage).

For clients building custom homes across Toronto, Richmond Hill, and throughout Ontario, construction financing requires careful coordination. You need land (often purchased separately), a builder with a detailed construction contract, municipal permits, and a clear project timeline. Lenders scrutinize these elements because construction carries inherent risks — delays, cost overruns, builder issues — that don't exist with existing home purchases.

CONSIDER THIS PATH IF

Is this right for you?

Custom home builders

You're building a home to your specifications with your own builder, not purchasing from a production builder.

Land owners ready to build

You own land and are ready to begin construction with financing for the build.

Renovation-to-new clients

You're demolishing an existing structure and building new on the same lot.

Owner-builders

You're acting as your own general contractor, though lender options are more limited.

Cottage or secondary home builders

You're building a recreational property with construction-specific financing needs.

Investors building to rent or sell

You're building properties for investment purposes rather than personal occupancy.

ADVANTAGES

Why this solution

Funds matched to progress

Pay interest only on what's been drawn, not the full project cost, reducing carrying costs during construction.

Lender oversight protection

Required inspections before each draw provide third-party verification that work is progressing properly.

Competitive completion terms

Once construction is complete, your mortgage converts to standard terms at competitive rates.

Expert coordination

Construction financing involves many moving parts — experienced guidance ensures they align properly.

HOW IT UNFOLDS

Your path forward

Project assessment

We review your land ownership, builder selection, construction contract, permits, and timeline to understand the full scope.

Financing structure design

Based on your project, we identify lenders offering appropriate construction products and structure the draw schedule.

III

Approval and initial draw

Once approved, we coordinate the first draw (often for foundation) and establish the process for subsequent advances.

Construction monitoring and completion

Throughout construction, we assist with draw requests and inspections, then arrange the completion mortgage once you have occupancy.

Progress draws release funds as construction milestones are completed

DOCUMENTATION

What to gather

Proof of land ownership or purchase agreement
Construction contract with licensed builder
Detailed construction budget and timeline
Architectural plans and specifications
Building permit from municipality

Builder's license and insurance
Personal financial documents (income, assets)
Appraisal of completed value (as-built appraisal)
Survey or site plan
Cost breakdown by construction phase

View complete documentation guide →

QUESTIONS

Frequently asked

ALSO CONSIDER

Ready to explore construction financing?

Every situation is unique. Let's discuss your circumstances and find the right path forward together.

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