Construction Loan

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.

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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.

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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:

1. Land purchase or first shovel

2. Foundation complete

3. Framing complete

4. Roofing and exterior done

5. Interior finish

6. Completion

Before each draw, a construction inspector checks the site. The lender then approves the next release of funds.

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Construction Loan vs. Traditional Mortgage

Construction loans require more planning and documentation. Dare 2 Dream helps you prepare and manage this process.

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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.

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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.

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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.

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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.

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What Happens After Construction Is Complete?

Upon the completion of new home construction, homeowners typically transition from a construction mortgage to a permanent mortgage. This process often involves securing a construction loan through options like construction-to-permanent loans or home construction loans, which can facilitate the shift from construction financing to mortgage financing.

During the construction phase, borrowers may have made interest-only payments during the construction period. Once the construction process is finalized, homeowners can apply for a construction loan conversion, allowing them to finance their dream home effectively, potentially impacting mortgage rates and conventional mortgage terms.

For those utilizing an apartment construction loan program, the transition may also involve evaluating the terms of their mortgage loan against that of an existing home to ensure the best financial outcome. Institutions like TD Bank offer tailored solutions to assist with this pivotal stage in a construction project.

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.

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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

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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.

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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.

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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.

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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.

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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.

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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

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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.