What Is a Construction Loan?
A construction loan is a short-term loan used to build a new property. It covers costs like land, labor, permits, and materials. In Canada, many lenders offer construction loans to individuals, builders, and businesses.
A construction loan provides money to finance the building of a home or commercial property. The funds are released in stages as the construction progresses.
The borrower repays the loan or converts it to a mortgage once the building is complete.
Who Needs a Construction Loan?
People or companies who plan to build a structure from the ground up usually need a construction loan. This includes:
Homeowners building custom homes
Developers building multiple units
Businesses building offices or warehouses
Dare 2 Dream Mortgage Company helps all types of clients get construction loans across Canada.
How a Construction Loan Works
A construction loan works in phases. The lender does not give the full amount at once. Instead, the lender releases funds in stages, based on the progress of the construction.
These stages are called draws.
Common draw stages include:
Land purchase or first shovel
Foundation complete
Framing complete
Roofing and exterior done
Interior finish
Completion
Before each draw, a construction inspector checks the site. The lender then approves the next release of funds.
Construction Loan vs. Traditional Mortgage
| Feature | Construction Loan | Traditional Mortgage |
|---|---|---|
| Use | Building property | Buying finished property |
| Payment Type | Interest-only during building | Full payments start at closing |
| Funds Disbursement | In stages (draws) | One lump sum |
| Term | Short (6–24 months) | Long (up to 30 years) |
Construction loans require more planning and documentation. Dare 2 Dream helps you prepare and manage this process.
Types of Construction Loans in Canada
1. Self-Build Loan
This loan is for people who plan to build their own homes. It helps with land purchase and construction costs.
2. Builder/Contractor Loan
This loan is for people who hire a licensed builder. The lender checks the builder’s qualifications before approval.
3. Commercial Construction Loan
This loan is for companies building retail stores, offices, or industrial units.
4. Land and Construction Loan
This loan covers both the land and the construction on it.
Dare 2 Dream helps you choose the right loan type based on your project.
Who Can Qualify for a Construction Loan?
To qualify, you usually need:
A good credit score
Proof of income
A detailed construction plan
A licensed builder or contractor
A down payment (usually 20%–25%)
You also need to submit drawings, permits, timelines, and cost breakdowns. Dare 2 Dream assists with gathering and reviewing all required documents.
What You Need to Apply
Here is what most lenders will ask for:
Building plans
Construction timeline
Builder or contractor contract
Itemized budget
Appraisal of projected value
Proof of income
Personal ID
Credit report
Down payment confirmation
Dare 2 Dream helps organize and submit this information to lenders.
Interest Rates and Fees
Construction loans usually have higher interest rates than regular mortgages. This is because they involve more risk for lenders.
Rates are often variable, based on the lender’s prime rate.
Additional costs may include:
Inspection fees (for each draw)
Legal fees
Appraisal fees
Title insurance
Permit fees
Dare 2 Dream compares rates and costs from multiple lenders to find options that match your budget.
What Happens After Construction Is Complete?
When the building is finished, the loan must be paid in full or converted into a long-term mortgage. This is called the take-out mortgage.
Dare 2 Dream arranges this transition and ensures there are no delays or added costs.
Pros of Construction Loans
Funds available during each phase of construction
Flexibility to design and build
Payments are interest-only during building
Can include land and building costs
Cons of Construction Loans
Higher rates than regular mortgages
Requires detailed documentation
Risk if construction delays occur
More inspections and appraisals
Dare 2 Dream helps you reduce delays and avoid common mistakes.
How to Use Construction Loan Funds
You can use the loan to pay for:
Land purchase
Excavation and foundation work
Building materials
Labor costs
Permits and inspections
Temporary housing during construction
You must show a clear budget and follow your approved plan. Lenders release funds only after confirming progress.
Construction Loan Example
Project: Building a single-family home
Loan amount: $500,000
Term: 12 months
Draws: 5 stages of $100,000 each
Interest rate: 6.5% variable
Repayment: Interest-only during construction
Final step: Convert to 25-year fixed mortgage
Dare 2 Dream helps you plan each step and manage all payments and transitions.
How Dare 2 Dream Mortgage Company Can Help
Dare 2 Dream Mortgage Company supports clients across Canada with construction loans. The company works with major banks, credit unions, and private lenders.
Services Include:
1. Pre-approval Help
Dare 2 Dream reviews your project and financials to check if you qualify. They help you prepare before applying.
2. Builder Review
They check if your builder or contractor meets lender standards.
3. Document Collection
They gather and verify all needed documents like permits, contracts, and budget plans.
4. Lender Comparison
They compare rates, terms, and fees from different lenders to find the best fit.
5. Draw Schedule Support
They help manage draw requests and coordinate with lenders and inspectors.
6. Mortgage Conversion
After construction, they help convert your loan to a long-term mortgage with favorable terms.
7. Personal Support
Dare 2 Dream offers direct help from experienced professionals throughout the process.
Why Work With Dare 2 Dream?
Experience with residential and commercial projects
Access to local and national lenders
Faster approvals with fewer delays
Bilingual service in English and French
Clear, direct communication
Dare 2 Dream helps make a complex loan simple and easy to manage.
When to Contact Dare 2 Dream
You should contact Dare 2 Dream if:
You plan to build a home, office, or multi-unit property
You want to compare lender options
You need help with permits or contracts
You are converting land into a build site
You want to manage construction and mortgage together
Final Thoughts
A construction loan gives you the money to build a home or commercial property. You get funds in stages, pay interest during construction, and convert the loan to a mortgage when the project ends.
The process takes planning, documentation, and coordination with lenders. Dare 2 Dream Mortgage Company helps at every step. They compare offers, explain options, manage paperwork, and support you from the first draw to the final mortgage.
If you need a construction loan in Canada, Dare 2 Dream is ready to help you build with confidence.