Construction Loan (Mortgage)

Construction Loans are available for Canadians.

Here are general information of a construction loan:

1. Lender advances fund to builder at specific times
2. Borrower must always put their own funds into project first
3. Some lendrs allow advances to purchase land*1
4. Some lenders require land is clear title
5. Provincial lien holdbaks are done on all advances 10%*2
6. All advances require an inspection (appraisal) to confirm % complete*3
7. Some lenders require additional for cost overuns
8. Can loan up to 95% of the "total value of property" (land value + cost of construction) *4


* 1 Can loan up to 65% of the "land value" to purchase the land
*2 10% of the money will be held back by the lender for 45days after completion of project
*3 Inspection and appraisal will be sent by the lender, approx cost $500 each visit
*4 For example, if land value is $200K, construction cost is $300K, the total property value when completed is $500K. Borrower can borrow 95% of the value = $475K


There are additional applicable costs with Construction Loans

- Admin fee per draw charged by lender (waived by some lenders)
- Cost of inspection (appraisal) per each draw
- Interest Rate during construction period (prime + 1% - 2%)
- Set up fee (waived in some cases)