Cheap Financing For Your New Home

Ontario custom-home financing guide

Construction Financing in Ontario: Progress Draw Mortgages, Cash Flow and Cost Overruns

Financing a custom home is not the same as obtaining a mortgage on a completed house. The lender releases money in stages, while the owner must keep the site moving, pay invoices on time and survive the gaps between construction spending and mortgage draws.

Start with the draw schedule, not the interest rate. Before signing a building contract, confirm how much the lender will advance, when each draw becomes available, what must be completed and inspected, what costs are excluded, how lien holdbacks are handled and how much cash you need before the first and between later draws.

Check Your Funding Gap Build the Full Project Budget Review Ontario Building Costs

Progress drawsFunds are released after lender-defined milestones, not all at once.

Interest during constructionMany products require interest payments on the amount already advanced.

10% lien holdbackOntario law generally requires statutory holdback on construction payments.

Cash-flow planningThe approved mortgage amount does not tell you when the money will be available.

The central difference

A construction mortgage is funded differently

Mortgage on a completed home

The lender normally advances the mortgage at closing after confirming the completed property’s value, title, insurance and borrower qualification.

The house already exists. The lender is not relying on future construction to create the collateral.

Progress-draw construction mortgage

The lender approves a maximum facility but releases money through multiple advances as the home reaches defined construction stages and passes inspections.

The owner must finance work before a draw, manage inspections and keep enough liquidity to avoid stopping the project.

RBC describes construction funds as multiple progress advances and provides a public example with draws after the foundation, enclosed framing, mechanical/exterior work and final completion. Scotiabank currently describes a progress-draw product with up to five advances. These are examples only; your lender’s milestones, percentages and deadlines may differ.

Typical draw sequence

How the money may move through the build

A lender does not normally reimburse every invoice as it arrives. It values completed work at agreed milestones. This example is intended to show the logic, not to predict any lender’s exact draw percentages.

Possible stage	What may need to be complete	Cash-flow danger
Land / initial advance	Approved land purchase or verified equity, registered mortgage, insurance and lender conditions.	The lender may not release enough to cover all design, permit, deposit and mobilization costs.
Foundation draw	Excavation, footings, foundation, waterproofing, drainage and sometimes backfill, depending on the commitment.	Site work, rock, dewatering, concrete and deposits may be paid before the first construction draw.
Enclosed shell draw	Framing or structural walls, roof, windows and exterior doors.	Large material deposits and trade invoices can exceed the net draw after holdbacks and prior advances.
Mechanical / exterior draw	Plumbing, electrical, HVAC, insulation, cladding or other lender-defined work.	Many expensive systems overlap, while lender value may lag behind invoices already due.
Final draw	Required completion, final inspection, occupancy documentation, insurance and acceptable title/lien status.	Deficiencies, landscaping, seasonal work or missing documents can delay final funds.

Never schedule construction from a sample draw table found online. Obtain the lender’s written draw schedule, inspection rules, completion deadlines, holdback treatment and final-advance conditions before committing to the build.

The correct order

Finance the project before the project finances you

Establish personal borrowing capacity

Obtain a meaningful preapproval or financing review based on income, assets, debt, credit and available equity. A preapproval is not a guarantee, and the final decision also depends on the land, plans, cost and completed value.
Build the complete project budget

Include land, legal closing, design, engineering, permits, development charges, site work, well, septic, hydro, house construction, HST, interest, lender fees, temporary accommodation, landscaping and contingency.
Prepare lender-ready plans and specifications

The appraiser and lender need enough detail to understand what will be built. Incomplete plans, unrealistic allowances and missing site costs weaken both valuation and approval.
Match the building contract to the draw schedule

The contractor’s payment schedule and the lender’s draw schedule must be compared line by line. A mortgage approval can still fail as a construction plan if the builder is owed money weeks before the lender will release it.
Confirm all conditions in writing

Clarify equity requirements, first draw timing, inspection fees, interest calculation, holdbacks, cost-overrun rules, change orders, owner-builder restrictions, deadline extensions and final conversion.
Maintain a live cost-to-complete report

After every draw, track the original budget, approved changes, paid amounts, unpaid commitments, remaining mortgage funds and realistic cost to complete. Do not rely only on the bank balance.

What lenders normally examine

Your approval is about the borrower and the build

Borrower information

Income and employment or self-employment documents
Credit history and current debts
Available cash, investments and other assets
Down payment and closing-cost evidence
Existing mortgage and property obligations

Land and title information

Purchase agreement or proof of ownership
Existing debt registered against the property
Survey, easements and access information where required
Property taxes and insurance
Appraised land and completed-home value

Project documents

Complete plans and specifications
Detailed construction budget and allowances
Building contract and payment schedule
Permit status and required approvals
Construction schedule and completion target

Builder and risk information

Builder experience, insurance and registration where applicable
Trade quotations and major supplier commitments
Contingency and cost-overrun capacity
Course-of-construction insurance
Owner-builder capability when no general contractor is used

The Financial Consumer Agency of Canada notes that mortgage preapproval reviews income, assets and debt and does not guarantee final approval. Federally regulated lenders also apply the mortgage stress test. Construction financing adds another layer: the lender must also accept the land, project, budget, builder and completed value.

Cash beyond the mortgage

The expenses that create financing trouble

Before the first draw

Land deposit and closing, legal work, survey, design, engineering, permits, conservation or planning reports, utility applications, builder deposits and early site investigation.

Between draws

Invoices become due before inspection, valuation and lender processing. You may need to bridge payroll, concrete, windows, mechanical equipment and other large commitments.

Costs outside the lender budget

Upgrades, landscaping, furniture, owner changes, temporary housing, storage, moving, delayed occupancy and items the appraisal does not fully recognize.

Interest and fees

Construction-period interest, appraisal or inspection charges, legal fees, lender fees, extension charges and the cost of temporary credit used to bridge draws.

Statutory holdback

Ontario’s Construction Act generally requires a 10% basic holdback. A lender may also retain or administer funds in a way that affects the net amount available to pay invoices.

Contingency and overruns

Rock, groundwater, unsuitable soil, winter work, price changes, design development, missed scope and owner changes can create costs that are not automatically added to the mortgage.

Planning calculator

Estimate the funding gap before you sign

This calculator does not determine mortgage eligibility. It simply compares the full project funding requirement with the mortgage advances, cash and land equity you expect to have available.

House, site and servicing budget

Land closing, design, permits and other upfront costs

Contingency percentage

Construction interest, lender, legal and inspection allowance

Expected construction mortgage advances

Cash available for the project

Land equity the lender has confirmed it will recognize

HST rebate counted as early construction cash

Total funding requirement $0

Total planned funding $0

Estimated funding gap $0

Land equity is not cash and may only be recognized at the lender’s appraised value and under its lending rules. The calculator also does not model when each draw arrives. A project can have no overall funding gap and still run out of working cash between draws.

Land equity

Owning the lot helps, but it does not pay invoices by itself

Land equity is the difference between the lender-accepted value of the property and debt secured against it. A lender may use verified equity as part of your required contribution, but the treatment varies.

Questions to settle

What value will the lender use for the land?
Will purchase price or current appraisal control?
How will an existing land mortgage be paid out?
How much land equity counts toward the required contribution?
Can any cash be advanced against the lot before construction?

The common misunderstanding

A borrower may own a valuable lot and still lack enough liquid cash to reach the first construction draw. The lender’s equity calculation strengthens the loan, but trades and suppliers still expect payment in money.

Plan both: total equity for approval and working cash for construction.

Builder versus owner-builder

The project-delivery method affects financing

Approach	Possible lender comfort	Borrower risk
Fixed-price general contract	A complete contract with an experienced builder may give the lender clearer cost, schedule and responsibility.	Allowances, exclusions, escalation clauses and changes can still move the final price.
Cost-plus contract	The lender may require a detailed estimate, fee structure, contingency and cost-control reporting.	The owner carries more price risk because final cost is not fixed.
Construction management	Acceptance depends on the manager, contract structure, trade commitments and borrower experience.	Trade contracts, deposits and timing may not align neatly with lender milestones.
Owner-builder	Some lenders will consider it; others will not. More equity and documentation may be required.	The borrower controls procurement, scheduling, safety, insurance, payments and completion risk.

Ask the lender to approve the delivery method and the actual builder or project manager before signing non-refundable contracts. A general mortgage preapproval is not proof that an owner-builder or cost-plus construction plan is acceptable.

Ontario holdback

Do not confuse the mortgage draw with the amount available to pay

Ontario’s Construction Act generally requires each payer under a construction contract or subcontract where a lien may arise to retain a basic holdback equal to 10% of the price of services or materials supplied until the applicable lien rights expire or are otherwise satisfied, discharged or provided for.

Why this matters to financing

A progress inspection may support a draw based on completed value, but statutory or lender holdbacks can reduce the net funds available. The builder’s invoice and the lender’s net advance may therefore be different.

What to coordinate

The construction contract, lender, lawyer and payment administrator should use one clear procedure for invoices, holdbacks, statutory declarations, lien searches and releases.

This page is general information, not legal advice. Ontario lien preservation and perfection periods, annual holdback rules and release requirements are technical. Have an Ontario construction lawyer advise on your contract and payment procedure.

Read the Ontario Construction Lien Guide

HST and rebates

A rebate can improve the final economics without solving the draw gap

Owner-built and builder-purchased homes may qualify for different federal and Ontario housing rebates when the legal requirements are met. In 2026, the federal first-time home buyers’ GST/HST rebate can provide eligible buyers up to $50,000, and Ontario introduced a temporary enhanced rebate applying to qualifying builder-purchased homes and owner-built homes where construction begins within the specified 2026-2027 window.

Do not use an estimated rebate to balance the construction account unless the lender and tax adviser have confirmed the amount and timing. Owner-built applications are normally made after the relevant completion or occupancy milestone, and CRA processing may occur after substantial construction spending is finished.

Keep the paper trail

CRA guidance requires original invoices and supporting records. Quotes, credit-card slips and bank statements do not replace acceptable invoices. Keep contracts, change orders, proof of payment and occupancy records organized throughout construction.

Confirm the claimant and structure

Eligibility can depend on who owns the land, who paid the invoices, intended occupancy, construction dates, fair market value and whether the applicant is treated as a builder for GST/HST purposes.

Use the Ontario HST Rebate Calculator

Questions for the lender

Get these answers before signing the building contract

Approval and equity

What borrower contribution is required?
How is land equity valued and credited?
What costs are excluded from the mortgage?
What completed value is required?
What happens if the appraisal is lower than expected?

Draw administration

How many draws are allowed?
What exact milestone triggers each draw?
Who orders and pays for inspections?
How long after inspection are funds released?
How are holdbacks deducted and released?

Budget changes

Can the mortgage increase after approval?
How are change orders reported?
What contingency must remain unused?
Can savings in one category cover another?
What happens if the project is over budget?

Time and completion

When must the first draw occur?
How long may construction take?
What extension fees or reapproval are possible?
What is required for the final draw?
How and when does the loan convert to a regular mortgage?

If you use a mortgage broker or agent in Ontario, FSRA recommends verifying licensing and asking how the professional is paid, what fees apply, what process to expect and what risks come with the recommended mortgage.

Practical planning tools

Build the budget before asking the lender to finance it

Whole-project calculator

Ontario Custom Home Building Calculator

Estimate the house, site work, permits, professional fees, utilities, contingencies and other major project categories.

Build My Project Budget

Before buying land

Ontario Lot-Buying Bible

$29.99

Review servicing, zoning, access, site costs, financing and the complete go/no-go decision before buying the property.

Get the Lot Bible

Permits and approvals

Ontario Building Permit Bible

$29.99

Organize consultants, drawings, submission requirements, fees and inspections in the order the project needs them.

Get the Permit Bible

Buying the lot and preparing the permit? Get both the Ontario Lot-Buying Bible and Ontario Building Permit Bible for $49.99.

Get Both Bibles

Related Ontario guides

Continue planning the complete project

Cost to Build a House in Ontario Custom Home Building Calculator Land Development Cost Calculator Buying a Building Lot Ontario Building Permit Guide New Home HST Rebate Calculator Ontario Construction Lien Guide Ontario Septic Systems Hub ICF Cost Calculator

Official and lender references

Sources used for this guide

Last reviewed: July 25, 2026. Lender programs, underwriting policies, interest rates and government rebates can change. Confirm current terms directly with the lender, mortgage professional, lawyer and tax adviser handling your project.

Frequently asked questions

Construction financing in Ontario

What is a construction mortgage in Ontario?

A construction mortgage finances a home that is being built rather than a completed house. Instead of advancing the full mortgage at closing, the lender normally releases funds in progress draws after specified construction milestones are completed and inspected.

How do progress draws work on a custom home?

The lender approves a maximum mortgage, then advances portions as the project reaches lender-defined stages. Typical stages may include land or start-up funding, foundation, enclosed framing, mechanical and exterior completion, and final completion. The exact number, timing and percentage of draws vary by lender.

Do I need cash before the first construction draw?

Usually, yes. Many borrowers must pay for land closing, design, engineering, permits, deposits, excavation or other early work before enough progress exists for a lender draw. Confirm the first eligible draw milestone and prepare a written cash-flow plan before construction begins.

Can land equity be used toward a construction mortgage?

A lender may recognize some verified equity in land you already own, but the amount and how it is credited depend on the lender’s appraisal, title position, existing debt and lending policy. Do not treat the full market value of the lot as available cash until the lender confirms it in writing.

How much contingency should I carry when building a house?

There is no universal percentage, but a realistic construction budget needs a separate contingency for unknown site conditions, price changes, design revisions and owner changes. Many planning budgets use at least 10 percent, while difficult rural or waterfront projects may require more.

Does the lender pay the builder directly?

That depends on the mortgage and legal arrangement. Some lenders advance funds to the borrower or lawyer after an inspection, and the borrower then pays the builder according to the construction contract. The draw process, required invoices, statutory declarations and payment direction should be confirmed before signing.

What is the Ontario construction lien holdback?

Ontario’s Construction Act generally requires a payer under a construction contract or subcontract to retain a basic holdback equal to 10 percent of the price of services or materials supplied until the applicable lien rights have expired or otherwise been dealt with. Obtain legal advice for the payment and release process on your project.

Can an owner-builder get construction financing?

Some lenders finance owner-builder projects and others do not. Where permitted, the lender may require more equity, detailed cost estimates, trade quotations, permits, insurance, a qualified project manager and stronger proof that the borrower can complete the home within the approved budget and schedule.

Should I count an HST rebate as construction cash?

Do not spend a projected rebate before confirming eligibility and timing. Rebate programs can be substantial, but owner-built claims are generally filed after the required construction or occupancy milestone and may be processed later. Keep original invoices and plan the project so it can finish without relying on rebate money arriving early.

When does a construction mortgage become a regular mortgage?

After the lender’s final requirements are satisfied, which may include substantial or full completion, a final inspection, occupancy documentation, insurance and confirmation that title and lien issues are acceptable, the construction facility is normally converted or renewed into a conventional mortgage with regular principal-and-interest payments.

Local construction company

Building in Simcoe County or Georgian Bay?

BuildersOntario teaches across Ontario. ICFhome builds in our local construction area. Harvey Juric and the ICFhome team have built more than 300 custom homes, including more than 250 ICF homes.

Service area: Collingwood, Wasaga Beach, Blue Mountains, Stayner, Barrie, Springwater, Oro-Medonte, Midland, Penetanguishene, Tiny and Tay; occasionally beyond for challenging projects or where the client lacks a contractor.

1. Send Plans for Review Share the plans, lot and current budget for an initial construction review. 2. Ballpark Estimate Provide the location, size and scope for an early working construction range. 3. Book a Call Discuss the lot, budget, financing sequence, ICF and the next practical step. 4. Visit Showhome Experience ICF walls and radiant-floor comfort before choosing how to build.

Important: This page provides general educational information, not mortgage, legal, accounting, tax or investment advice. Construction financing is lender-specific and property-specific. Obtain written commitments and independent professional advice before entering contracts or relying on projected advances or rebates.