If you are looking to buy a home, you may be more keen on having one built from the ground up. Whether you prefer new construction or are particular about the type of home you want, building a new home is certainly an option, and it is one of the many types of mortgages available in Canada. A home builder mortgage, also called a new construction mortgage, can help you finance it.
Key Points
1. A home builder mortgage, also known as a construction mortgage, lets you finance a home that has not yet been built or finished.
2. There are two main types: a progress draw mortgage (funds released in stages as building milestones are met) and a completion mortgage (funds released in one lump sum once the home is done).
3. To qualify, you generally need strong credit, a larger down payment (often 20% to 35%), proof the build will finish on time, and proof your builder is experienced.
4. First-time buyers building a new or owner-built home may get up to $50,000 back through the new First-Time Home Buyers’ GST Rebate.
What Is A Home Builder Mortgage In Canada?
A home builder mortgage, also known as a construction mortgage, is a type of loan that lets you finance the purchase of a home that has not yet been built. Rather than handing over one lump sum on closing day the way a regular mortgage does, this type of financing is designed around the stages of construction.
A home builder mortgage can come in two forms: a progress draw mortgage and a completion mortgage.
- Progress Draw Mortgage. A certain amount of the mortgage is released by the lender after each phase of the project is complete.
- Completion Mortgage. Funds are not released until the construction is complete.
New home construction is a big part of the Canadian housing market, so you are not alone if you are considering it. In 2025, home builders started work on 259,028 new homes across Canada, up 5.6% from the year before1.
Progress Draw Mortgage Vs Completion Mortgage
The two types of home builder mortgages work very differently in terms of when you get the money and how you are expected to manage the build. Here is a quick side-by-side look before we get into the details.
| Feature | Progress Draw Mortgage | Completion Mortgage |
|---|---|---|
| When funds are released | In stages (draws), after each building milestone is inspected | In one lump sum, once the home is finished |
| Payments during the build | Often interest only on the funds released so far | No mortgage payments until you take possession |
| Inspections | Required before each draw | Typically one final inspection |
| Best for | Self-builds and custom homes you are managing | Buying a finished home from a builder or developer |
Both options end the same way. Once your home is built, the balance converts to a regular mortgage with principal and interest payments.
How Does A Progress Draw Mortgage Work?
With a draw mortgage, lenders release funds incrementally as each phase of construction is complete. While a home builder mortgage is in the draw phase, the lender may only require interest to be paid on the loan amount released so far. Once construction is complete, you will need to pay both principal and interest.
During each phase of construction, the lender will send a home inspector to the property to review the building’s progress and make sure that everything is going according to schedule. After each visit, the inspector will submit a progress report to the lender, who will grant more funds accordingly.
Your lender may lay out a plan that details the required percentage of construction completion before funds are granted. For instance, they may require that 15% of the project is complete for the first draw, 25% for the second draw, and so forth.
Keep in mind that these inspections are typically at your expense, so consider budgeting for this added cost.
Progress Draw Mortgage Schedule
A sample of the various phases of a draw mortgage may look like this:
| Draw Phase | When Funds Are Released |
|---|---|
| Foundation draw | Funds during the initial phase are provided when the plot of land is purchased and construction of the home has begun. |
| Framing draw | Funds are released when the structure of the home is built and enclosed. |
| Lock-up draw | Funds are provided when installation of the exterior doors and windows is complete. |
| Drywall draw | Funds are given when the installation of the drywall is complete. |
| Completion draw | Funds are released when the house is finished or nearly completed (90% to 100%). The electricity and plumbing should work, all permits and contracts must be signed, and the home must be liveable. |
Most lenders allow up to four draws over the course of a build, though some may allow more.
How Does A Completion Mortgage Work?
A completion mortgage provides funding once the new home construction is complete. Rather than releasing a portion of the funds after each phase, the lender will provide a lump sum after the job is done. That means the builder will not receive any funds until you take possession of the home.
Since your mortgage will only be finalized 30 days before you officially take possession of the house, some lenders will require that you put a down payment on the home. However, unlike the down payment on an existing home, your lender should allow you to pay it in installments.
Once the home is finished, the completion mortgage is used to pay off the remaining balance to the builder.
How To Get A Home Builder Mortgage
The process to finance a new build is more involved than a regular mortgage on an existing home, so it helps to know the steps before you apply. Here is how to get a home builder mortgage from start to finish.
Gather Your Construction Plans
Have blueprints, a fixed-price contract, and a detailed budget ready before you apply. A home builder mortgage relies heavily on this paperwork.
Line Up An Experienced Builder
Lenders want proof that your contractor is licensed and has a track record of finished projects before they approve financing.
Save A Larger Down Payment
Plan for roughly 20% to 35% of the home’s completed value. If you already own the lot, that land equity can count toward it.
Get Pre-Approved With A Longer Rate Hold
New builds often need a 12 to 18 month rate hold to cover the construction timeline, versus the usual 90 to 120 days on a resale purchase.
Choose Progress Draw Or Completion
Pick the structure that fits your situation, whether you are self-building or buying a finished home from a builder.
Budget For Inspections And A Buffer
Set aside money for each draw inspection plus a contingency fund of 10% to 15% of the total project cost.
Working through these steps early makes the rest of the application smoother, since a home builder mortgage relies heavily on the paperwork you bring to the table.
Eligibility Requirements For A Home Builder Mortgage
Financing the building of a new home is more complicated than a conventional mortgage on an existing home. It is also more expensive because fewer lenders offer this type of mortgage.
When you apply for a home builder mortgage, your lender will likely require more assurances before they lend you money, such as the following.
Strong Credit And Financial Profile
As is the case with a traditional mortgage, your lender will require that you have a strong credit score and steady income before they consider your application. Many lenders look for a credit score of around 680 or higher for construction financing, though the exact bar depends on the lender.
Proof That Construction Will Be Completed Within A Certain Timeframe
Many uncertainties can come with financing a home that is not built. As such, lenders may want proof that construction will be done within a certain time.
Proof That The Builder Is Experienced
The lender will want to know that the contractor or developer you hire is certified and has a history of well-built housing projects. If you are acting as the contractor, your lender may require proof that you are adequately qualified to take on a project of this size. This is especially true for progress draw mortgages.
Large Down Payment
When building a home, you will have to offer a more sizable down payment than a traditional mortgage. Usually, the down payment for a home builder mortgage is around 25% to 30%, and some lenders ask for up to 35%. Because most lenders cap financing at roughly 75% of the home’s completed value, you cover the rest as a down payment. If you already own the lot you are building on, that land equity can count toward your down payment.
During the 30 days before you take possession of the home, you can make certain changes to your mortgage, such as increasing it to finance extra upgrades during construction. However, before the completion mortgage is finalized, it is important not to make any significant changes to your credit or financial situation, such as switching jobs or taking out another loan. Deviating from the lender’s guidelines could result in your mortgage being revoked.
Home Builder Mortgage Rates
Home builder mortgage rates are typically higher than the rates on a regular mortgage. Lending on a home that does not yet exist carries more risk, so lenders price that risk into the rate. During the build, many lenders charge interest only on the funds that have been released so far, which keeps your payments lower until the home is finished.
New builds also need a longer rate hold than a resale purchase. A standard purchase usually comes with a 90 to 120 day rate hold, while a home builder mortgage often needs 12 to 18 months to cover the full construction timeline. Once the home is complete and the balance converts to a regular mortgage, you can choose a fixed or variable rate and an open or closed term that suits your budget.
The GST Rebate For New Builds
If you are a first-time buyer, building a new home comes with a tax break worth knowing about. The First-Time Home Buyers’ GST Rebate, which became law on March 12, 2026, gives eligible buyers back up to 100% of the 5% federal GST on a qualifying new home, to a maximum of $50,0002. The full rebate applies to homes valued up to $1 million and phases out between $1 million and $1.5 million.
The rebate is especially relevant here because it applies to newly built homes, including owner-built homes. That means a home you build for yourself may qualify, as long as you meet the first-time buyer conditions and your purchase or build agreement falls within the eligible dates.
Note: Owner-Built Homes Can Qualify For The GST Rebate
The First-Time Home Buyers’ GST Rebate covers newly constructed homes and owner-built homes, with a maximum benefit of $50,0002. To qualify, you generally need to be a first-time buyer and your agreement must have been entered into on or after March 20, 2025 and before 2031.
Because the rules mirror the existing GST/HST New Housing Rebate, it is worth confirming your eligibility with the Canada Revenue Agency or your builder before you count on the savings.
Even a partial rebate can free up thousands of dollars, so factor it into your budget early.
Additional Things To Consider Before Taking Out A Home Builder Mortgage
Before you apply for a home builder mortgage, keep the following factors in mind.
Lots Of Preparation May Be In Order
There is a lot of preparation you should do before you apply with any lender. You should be ready with construction plans, blueprints, and a contract for the construction and related costs.
If you are doing a self-build, you will need a quote for building materials and labour. For the lot you are buying, you will need permission from the municipality to build there. You will also need a copy of the deed and proof of sale for the property.
You May Need Bridge Financing
If you are building while still living in your current home, you may need short-term or bridge financing to cover the gap until your build is complete and your existing home sells. This can help you avoid carrying two sets of housing costs at once.
Consider Future Resale Value
While you should design your home according to your tastes, you may eventually sell the house. It is good to think about what other people might like to see in a home to make it an easier sell. If the house is very big and expensive, for instance, you will limit the number of buyers who could afford it.
Consider The Overall Cost
Perhaps the most important consideration is the money you put into it. Prepare yourself financially for any unexpected events that may cause a halt in construction, plus any extra fees or repairs that could arise. Anything can go wrong, so it is best to have a backup strategy, even if it means dipping into your savings. It is recommended to set aside at least 15% of the home’s total cost in case anything happens that endangers the project.
Should You Build A Home Yourself Or Buy From A Builder?
The type of financing you obtain will be determined in part by whether you decide to build a new home yourself or buy from a developer.
Building The Home From Scratch
The biggest benefit of building a new home from scratch is that you can customize your home based on your preferences. You can also choose the types of finishes you like, rather than risk the builder choosing lower-quality materials.
If you are planning to build your new home from scratch, you will first have to purchase a vacant lot to build it on. You might even purchase a lot with an existing home, with plans to tear it down and build a new one. As an owner-builder, you take on more responsibility, but you also gain the most control over the finished result.
Buying From A New Home Builder
Buying a home already under construction from a new home builder is an option for those who want a brand-new house but do not want to go through the planning and construction themselves. This is common when a new neighbourhood or housing community is being built, and it often means buying a pre-construction home.
Essentially, you will have some say in how the house looks but will do a lot less of the grunt work. You will still have responsibilities, such as picking the lot, choosing the layout and finishes, and deciding what additions to install, if any. With some pre-construction purchases, especially condos, you may also go through a period of interim occupancy where you can live in the unit before your mortgage is finalized.
Final Thoughts
Building a house from the ground up may be risky for you and your lender. If you’re looking to build your dream house, don’t let the thought of unfinished projects deter you. With a construction mortgage, there’s little reason why you can’t successfully build your dream home from the ground up.
Builders Mortgage FAQs
Can I get a variable rate on a construction mortgage?
Who gets the funding from a construction mortgage, the homeowner or the builder?
How many draws can I get with a construction mortgage?
What happens to a construction mortgage after the home has been built?
References
- Canada Mortgage and Housing Corporation. (2026). Housing starts up 5.6% in 2025 from 2024. https://www.cmhc-schl.gc.ca/media-newsroom/news-releases/2026/housing-starts-december-2025
- Government of Canada, Department of Finance. (2026). First-Time Home Buyers’ GST Rebate. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/gst-hst-rebates/new-housing-rebate.html
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
