Buying or building the perfect home doesn’t always mean finding something that already exists. Sometimes the best option is to build your dream home from the ground up or buy a property with potential and renovate it into exactly what you want.
Construction and renovation financing makes these options possible by allowing the cost of building or improving a property to be included in your mortgage.
A mortgage broker can help you navigate these specialized financing options and connect you with lenders that support your plans.
Construction Financing
What is construction financing?
Construction financing is a mortgage designed for people building a new home. Instead of receiving the entire mortgage amount upfront, the funds are released in stages (called draws) as the construction progresses.
Each draw helps pay for a specific stage of the build, such as:
- Land purchase (in some cases)
• Foundation
• Framing
• Lock-up stage (windows, roof, exterior)
• Interior finishing
• Final completion
This structure allows lenders to safely finance the project while ensuring funds are used as construction progresses.
How does a draw mortgage work?
With a draw mortgage, the lender releases funds at predetermined stages of the construction project. Before each draw is released, the lender may require:
- An inspection confirming the stage of construction
• Confirmation from the builder
• Updated project documentation
Once the home is completed, the mortgage typically converts into a standard mortgage with regular payments.
Who is construction financing for?
Construction financing is ideal for buyers who:
- Already own land and want to build
• Are purchasing land to build a custom home
• Are working with a builder on a new construction project
• Want more control over their home design and features
Because construction mortgages are more complex than standard mortgages, working with a mortgage broker helps ensure the project is structured properly from the start.
Renovation Financing
What is renovation financing?
Renovation financing allows you to include renovation costs within your mortgage when purchasing a home. This is often called a Purchase Plus Improvements mortgage.
This option allows buyers to purchase a home that may need updates and finance the renovations at the same time, rather than paying for improvements out of pocket.
How does a Purchase Plus Improvements mortgage work?
With this program, the lender approves a mortgage based on the purchase price of the home plus the cost of the planned renovations.
Here’s how the process typically works:
- You purchase the home.
- You provide quotes for the planned renovations.
- The lender approves the mortgage including the improvement costs.
- Renovations are completed after possession.
- Once the work is finished and verified, the renovation funds are released.
This allows buyers to complete upgrades such as:
- Kitchens and bathrooms
• Flooring and interior updates
• Roof replacement
• Basement finishing
• Energy efficiency improvements
Why consider renovation financing?
Renovation financing can open the door to homes that might otherwise be overlooked. Instead of competing for fully renovated properties, buyers can purchase a home with potential and customize it to their taste.
Benefits include:
- Turning an older home into your dream home
• Adding value through improvements
• Financing renovations at mortgage interest rates
• Accessing more housing options in competitive markets
Why Work With a Mortgage Broker?
Construction and renovation mortgages require more planning and coordination than standard home financing.
A mortgage broker helps by:
- Identifying lenders that offer construction and renovation programs
• Structuring the mortgage to match your project timeline
• Coordinating with builders, contractors, and appraisers
• Making sure financing runs smoothly from start to finish
With the right planning, construction and renovation financing can help turn a vision into a reality.