How to Finance a Home Build in Canada

If you want to build in Canada, you can't just throw money at a contractor. You need to structure the deal so the bank feels safe enough to lend you the leverage. This isn't just about architectural design, it's about underwriting.

Here is how to navigate construction financing in Canada.

The 20% Rule (The Lot)

The project lives or dies at the purchase price of the land.

You have two main loops to find dirt: the MLS (retail on-market) or Direct to Seller (off-market). Regardless of the source, the math must govern the decision.

The Golden Ratio: The purchase price of your lot should be no more than 20% of the final sale price of the completed home. If the land costs too much, the equity spread vanishes before you pour the foundation.

The Underwrite: Verify the Signal

Before you design, you verify. A "cheap" lot is often expensive in disguise. You need to run a tactical underwrite to ensure the lot is actually buildable.

• Service Check: Is there sewer? Water? Power? Bringing these in from a distance destroys budgets. Check your utilities.
• Zoning Context: What are you legally allowed to build? Don't guess.
• The Financial Void: Check the comps. What are similar houses selling for? If your cost to build per square foot plus land exceeds the market value, stop. You are building underwater.

Assemble the Team

You are not the builder. You are the conductor.

To get financing, the bank needs to see a credible team. They invest in people, not just plans.

• Land Surveyor, Designer & Structural Engineer: To create the blueprint.
• Municipal Information & City Planner: To navigate the bureaucracy.
• The Builder (Licensed GC): Usually operates on a Cost + 10% model. This aligns incentives better than a fixed bid where they cut corners to save margin.

The Financing Loop

This is where the amateur gets stuck and the pro gets leverage. Financing a build is different than a standard mortgage. It happens in phases.

1. The Capital Injection

You typically have two routes:

• Hard Money Loan: Fast, flexible, but expensive. Requires 15-20% down. Good for speed or flipping.
• Personal Home Loan (Construction Draw Mortgage): Cheaper rates. Requires 5-10% down. You must show strong business income (T4s) and business financials.

2. The Draw Schedule

Banks don't give you a lump sum. They release money in draws. You complete a stage (e.g., framing), the bank inspects it, and then they release the funds to pay the invoices. You are floating the cash flow in between.

3. The Exit

Construction loans are short-term bridges (6-18 months) with higher interest rates.

• The Switch: Once the occupancy permit is issued, you execute a "switch" from the construction loan to a standard residential mortgage.
• Construction-to-Permanent: Some lenders offer a "single close" package that automatically converts to a long-term mortgage when the build is done. This saves closing costs.

A Note on Canadian Taxes

Context matters. If this is your primary residence, Canada offers the Principal Residence Exemption, which shields the gain from tax. However, be aware of the new Anti-Flipping Rule: you generally need to live in the property for at least 12 months to claim this, otherwise, the CRA treats the profit as fully taxable business income.

Manage People, Not Tools

The biggest mistake new builders make is trying to manage the hammers.

Your job is to manage the flow of information. Use the bank's inspections and the city inspectors as your quality control. If the bank won't release the draw because the framing isn't right, that is your leverage over the builder.

Let the system do the work.