Getting a Mortgage to Build a House: Everything You Need to Know

Eligibility Requirements for a Mortgage to Build a New Home 

Obtaining a mortgage to build a house is the first step toward making your dream home a reality. Unlike buying an existing property, construction requires specialized financing - usually a construction loan with staged payouts, higher down payments, and more documentation. While the process is more complex, understanding it from the outset helps avoid costly surprises, allowing you to enjoy the experience of creating your custom-built dream home.

Key Takeaways

• Construction loans fund new builds in stages as milestones are reached.

• Most Canadian lenders require a credit score of 680 or higher.

• Down payments typically range from 20% to 35% of the total project cost.

• Progress draw mortgages release funds in stages; completion mortgages pay after construction is finished.

• You usually make interest-only payments during construction.

Understanding Construction Loans: The Basics 

Construction loans are short-term, specialized financing options that provide funds in stages as your home is built. These loans are not disbursed as a single lump sum. Instead, lenders release funds at specific milestones, such as foundation completion or framing, to ensure the money is used as planned.

In Canada, borrowers typically require a credit score of 680 or higher, along with solid proof of income. One advantage of this approach is that you’ll generally only make interest payments during construction. Once the home is complete, the loan is either paid off (from selling the house) or converted into a standard mortgage.

Progress Draw vs. Completion Mortgages 

When financing new construction, you’ll encounter two primary options:

Progress Draw Mortgage: This type of loan provides funds in stages as construction advances. A lender-approved inspector verifies work completion at each stage before releasing the funds. You typically pay interest only on the amount you use, which helps manage your cash flow.

Completion Mortgage: With this option, your builder covers construction costs upfront. You receive a full mortgage payout only after the home is completed. This shifts financial responsibility to the builder during the construction phase.

Both require down payments ranging from 20% to 35%, depending on lender policies and whether you're also purchasing land.

Eligibility and Required Documentation 

To qualify for a mortgage to build a house, you'll need to demonstrate strong financial stability. Requirements typically include:

• A credit score of at least 680

• Steady income and good debt ratios

• Down payment of 20% to 35%

You must also submit detailed documentation, such as:

• Construction plans and blueprints

• A comprehensive budget and timeline

• Proof of builder qualifications and insurance
  

Choosing a reputable builder is crucial. Lenders want assurance that your home will be completed on time and to a professional standard.

Down Payment and Budgeting Tips 

Construction mortgages carry more risk for lenders, which is why down payments are typically higher than those for standard home purchases. Some lenders may allow payments to be made in line with construction stages, easing some of the upfront pressure.

When budgeting, include:

• Permits and inspections

• Contingency for unexpected costs

• A buffer against price fluctuations in materials

If you're selling your current home, timing the sale with your construction timeline can help free up funds for your down payment.

Why Custom Builds vs. Developer Homes Matter 

At White Wolf Homes, we offer the best of both worlds: the personalization of a self-built custom home without the burden of managing every detail. Unlike developer-built homes with pre-set designs and schedules, custom homes allow you to design a space that reflects your lifestyle.

Our team handles everything from permits and planning to construction and final finishes. We combine your vision with professional project management and craftsmanship to deliver a seamless, transparent building experience.

Frequently Asked Questions

• Can I Get A Mortgage To Build A House On Land I Already Own? Yes, if you already own land, lenders typically factor the land's value into your down payment or equity when approving your construction mortgage.
  

• Do I Need Mortgage Insurance For A Construction Loan In Canada? If your down payment is less than 20%, you’ll likely need mortgage insurance through providers like CMHC. However, most construction loans require higher down payments, so insurance is less common but still possible.
  

• How Long Does It Take To Secure A Mortgage To Build A House? The approval process can take several weeks longer than a traditional mortgage due to the detailed documentation required, such as builder contracts and construction timelines.
  

• What Happens If My Construction Costs Go Over Budget? Lenders typically won’t advance extra funds beyond the approved loan amount. It’s crucial to budget a contingency fund - usually 10-15% of the build cost - to cover unforeseen expenses.

Building Your Dream Home Starts Here

Securing a mortgage to build a house may feel overwhelming at first, but with the right knowledge and the right team, it becomes an exciting and rewarding journey. 

White Wolf Homes is a proud member of the Victoria Residential Builders Association. Experienced in managing construction loans, our team can streamline the process, reduce stress, and ensure your dream home becomes a reality.

Let us help you build not just a house, but your forever home. Contact White Wolf Homes today to start your journey.