Finance the build. Plan the gaps between draws.

A construction draw mortgage is a loan that advances money in stages as your home is built, rather than in one lump sum at closing. Each stage — or draw — is released after a lender inspection confirms that specific construction milestones are complete. You pay interest only on the money that has been drawn, not on the full approved loan amount.

The number and size of draws depend on the lender and project. The schedule may follow foundation, framing, lockup, finishing and completion milestones, but these are not universal percentages. Confirm the actual advance conditions, inspections and available cash between draws before construction begins.

Yes, but only on the money that has been drawn — not the full approved amount. As each draw is advanced, your monthly interest payment increases with the drawn balance. Most lenders require interest-only payments during construction, which keeps cash flow manageable while principal repayment starts after conversion to a regular mortgage.

Yes. If you own the land free and clear, lenders may use it as your equity contribution, which can reduce or eliminate the need for a cash down payment on the construction portion. If the land still has a mortgage, the construction loan typically pays out the existing land loan first and the remaining equity counts toward the down payment requirement.

Construction financing has lender-specific equity and draw requirements. For an eligible insured owner-occupied home, the minimum starts at 5% of the first $500,000 plus 10% of the amount above $500,000, below $1.5 million. At $1.5 million or more, at least 20% is required. A construction lender may require more equity and cash between draws. Approved land equity may count toward the requirement.

Timing depends on the lender, project and completeness of the application. Plans, the builder contract, budget, appraisal and insurance can all require review. Ask for an estimated timeline once the broker has seen the project, before committing to a construction start date.

Self-build construction mortgages are available in Canada but are harder to qualify for. Lenders want proof of construction experience, a detailed project plan, fixed-price subcontractor quotes, and usually a larger down payment or contingency reserve. First-time self-builders face stricter underwriting than experienced builders.

A cost overrun contingency of 10–15% should be built into the construction budget from the start. If costs exceed the contingency, you may need to fund the shortfall from your own resources or negotiate a loan modification with the lender. This is why lenders scrutinize the builder contract and cost breakdown carefully before approving the draw schedule.