BC Realtor Guide to Construction Draw Mortgages & New Build Financing (2026)

Construction Mortgage vs. Conventional Mortgage: The Core Difference

A conventional mortgage funds a complete, habitable property at a single point in time. A construction mortgage — also called a progress advance mortgage or draw mortgage — funds a property that does not exist yet, in stages, as it is being built.

The logic is straightforward: a lender cannot take a completed home as security if the home has not been built yet. Instead, the lender takes the lot as security from day one and releases additional funds as the building progresses and increases in value.

Feature	Construction Mortgage	Conventional Mortgage
When funds release	In stages (draws) as construction progresses	At closing on a completed property
Interest during build	Interest only on drawn amount	Full principal + interest from day 1
Inspection requirement	Progress inspection before each draw	Single appraisal at approval
Down payment typical	20-25% minimum (many lenders), 5% with CMHC	5% insured, 20% uninsured
Rate during build	Variable (prime + premium) in most cases	Fixed or variable at purchase
Maximum draws	Typically 3-5 draws over construction period	N/A — single advance
HPO registration	Lender requires builder HPO registration	N/A
Builder contract	Fixed-price contract required	N/A

The Five Standard Draw Stages

Most BC lenders use a 3-5 draw structure. The most common is 5 draws aligned with construction milestones. Each draw requires a physical progress inspection by a lender-appointed inspector (or CMHC-approved inspector for insured loans):

15%

Draw 1 — Foundation Complete

Footings, foundation walls, and foundation inspection passed. Concrete cured. Drainage and waterproofing in place. Typically released at 15% of total loan.

25%

Draw 2 — Framing Complete

All framing (floors, walls, roof structure) complete and rough-in inspections passed. Windows and exterior doors installed. Building is weather-tight shell. Released at roughly 25% of loan.

20%

Draw 3 — Lock-Up

Exterior cladding, roofing complete. All exterior doors and windows installed and operable. Building is weather-tight — protected from elements. Rough-in for HVAC, plumbing, electrical complete.

25%

Draw 4 — Drywall Complete

Interior drywall taped, mudded, primed. Insulation installed. Interior rough-in inspections passed. Flooring substrates installed. Building is substantially interior-complete.

15%

Draw 5 — Completion

Final building inspection passed. Occupancy permit issued. Property ready for habitation. Final draw funds completion. Mortgage converts from draw to conventional amortizing.

Note on Draw Percentages

Draw percentages vary by lender. Some use 3 draws (foundation/lock-up/completion), others 5 or even 6. CMHC insured construction loans use specific advance schedules. The buyer's mortgage broker will obtain the lender's specific draw schedule before the loan closes.

The Progress Inspection Process

No draw is released without a progress inspection. Here is how the process works:

The builder notifies the buyer that the construction stage is complete.
The buyer (or mortgage broker on their behalf) requests a progress inspection from the lender.
The lender sends an appraiser or inspector to verify the stage is complete and the work meets the construction contract specifications.
The inspector submits a report confirming completion of the stage (or identifying deficiencies that must be corrected first).
The lender releases the draw directly to the lawyer/notary in trust, who disburses to the builder (minus applicable holdback for builder's lien purposes).

Progress inspections typically take 3-10 business days from request to draw release. Builds with tight cash flow or impatient builders experience significant friction at each draw stage.

Interest Costs During Construction

One of the most underestimated costs in a custom build is the interest during construction. The buyer typically pays:

Mortgage payments on the lot purchase (if the lot was purchased separately)
Interest-only payments on each draw advance as it is released
Rent or other housing costs if they are living elsewhere during construction (many buyers must wait 12-18 months for their build to complete)

Interest Cost Example — $700K Construction Loan, 7.2% Rate

Months 1-3 (Foundation, framing)

Balance: $105,000$630/month

Months 4-6 (Lock-up)

Balance: $280,000$1,680/month

Months 7-9 (Drywall)

Balance: $455,000$2,730/month

Months 10-12 (Completion)

Balance: $595,000$3,570/month

Estimated total interest during build≈ $25,000–$30,000

Approximate figures. Rate, draw timing, and actual amounts will vary. Does not include lot mortgage or housing costs during construction.

CMHC Construction Mortgage Rules

CMHC insures construction mortgages under its Progress Draw mortgage program. Key rules:

Eligible properties: Single-family homes, duplexes, and small multi-unit (up to 4 units) for owner-occupied use. Investment properties are not eligible for CMHC insured construction mortgages.
Minimum down payment: 5% for properties under $500K, 10% on the portion between $500K and $1M, 20% for properties over $1M (same as standard CMHC purchase rules).
Maximum loan: The lesser of: (a) purchase price of lot + construction contract value, or (b) as-complete appraised value.
Builder requirement: Builder must be registered with CMHC and the BC Homeowner Protection Office (HPO). New Home Warranty must be in place.
Insurance premium: Same as standard CMHC premiums (0.6% to 4.0% of mortgage amount depending on LTV), but applied to the total approved mortgage amount — not just the initial lot advance.
Completion deadline: Construction must be complete within 18-24 months (lender-specific). Extensions may be available.

Lot Purchase Financing

Many custom build clients purchase the lot first, then arrange construction financing. Lot purchase financing is fundamentally different from home purchase financing:

Lot Type	Typical LTV	Notes
Serviced urban lot (with services to lot line)	65-75% LTV (25-35% down)	Best case for conventional lenders; serviced lot with building permit potential
Serviced rural lot (under 2 acres)	65% LTV (35% down)	More restrictive; must have services (water, sewer or septic, power)
Raw/unserviced land	50% LTV or less	High risk for lender; often requires private/B-lender financing
ALR lot	50-65% LTV	Agricultural restriction limits development potential; most lenders cautious
Island/remote lot	50% LTV or less	Limited resale market; high risk premium; often B-lender or private

BC Homeowner Protection Act & HPO Requirements

In BC, builders of new residential homes for sale must be registered with the Homeowner Protection Office (HPO) under the Homeowner Protection Act. HPO registration is not optional — lenders require it as a condition of the construction mortgage.

New Home Warranty (BC)

BC's mandatory new home warranty provides:

1 year: Defects in materials and labour
2 years: Defects in mechanical, electrical, and plumbing systems
5 years: Building envelope defects (water penetration, leakage)
10 years: Major structural defects

The builder must obtain a new home warranty from an approved provider (Home Warranty Insurance BC, Travelers, or another BCFSA-approved insurer) before the first occupancy permit is issued. The warranty follows the property — not the original buyer — and is transferable to future owners.

Fixed-Price vs. Cost-Plus Contracts

Lenders almost universally require a fixed-price contract for construction mortgage approval. Understanding the difference matters:

✅ Fixed-Price Contract

• Builder agrees to complete for a specific total price
• Lenders accept for construction mortgage
• Cost overruns are the builder's problem
• Buyer knows their maximum cost
• Builder prices in a contingency

⚠️ Cost-Plus Contract

• Buyer pays actual costs plus a markup/fee
• Most lenders will not fund this structure
• Cost overruns flow to buyer
• Final cost unknown until completion
• Common with owner-managed builds

Common Pitfalls That Derail BC New Builds

Cost overruns exceed contingency

Critical

The #1 cause of stalled builds. BC construction costs have increased 25-40% since 2020. Budget a 15-20% contingency on top of the fixed-price contract — not 5-10% as many buyers assume.

Builder goes out of business mid-build

High

New Home Warranty provides some protection, but replacement builders are expensive and the project may stall for months. Choose a financially stable, HPO-registered builder with a track record in BC.

Construction delays exceed mortgage commitment

High

Mortgage rate locks and commitments typically expire in 90-120 days. Multi-year builds need rate hold extensions — which may come at a cost or may not be available at the original rate.

Permit delays blocking first draw

High

Some BC municipalities have 6-18 month building permit queues. The buyer carries lot financing costs with no construction advance until the permit issues.

Draw timing mismatches builder cash flow

Medium

Builders need payment to pay subtrades. If draws are delayed, the builder may slow work or demand direct payment — creating lien risk.

As-complete appraisal comes in low

Medium

The lender's approved loan is capped at the lower of contract value or as-complete appraised value. If the appraiser's estimate of completed value is below the construction cost, the buyer must cover the gap.

Advising Your Client: Questions to Ask Before They Break Ground

As the realtor who helped a client buy the lot — or who is working with someone planning a custom build — these are the key questions to raise before they commit:

Have you pre-qualified for a construction mortgage specifically (not just a conventional mortgage)?
Has a mortgage broker confirmed the lot qualifies as security at an acceptable LTV?
Do you have a 15-20% contingency reserve above the fixed-price contract?
Is the builder HPO-registered and in good standing? Have you seen their recent builds?
What is the current building permit queue time with this municipality?
Do you have alternate housing arranged for the construction period?
Have you factored in interest costs, permit fees, development cost charges (DCCs), and landscaping?
If you're purchasing a lot with existing financing, can you refinance it into the construction mortgage or will you carry two loans?

Frequently Asked Questions

What is a construction draw mortgage in BC?

A construction draw mortgage releases funds in stages as construction progresses, rather than as a single lump sum. Each stage (foundation, framing, lock-up, drywall, completion) requires a progress inspection before the next draw is released. The borrower pays interest only on the drawn amount during construction.

Do you need 20% down for a construction mortgage in BC?

CMHC insures construction mortgages with as little as 5% down for owner-occupied homes, subject to purchase price limits. Many lenders require 20-25% down for uninsured construction loans. Lot purchases typically require 20-35% down as raw land is not CMHC-insurable.

How much does interest cost during construction in BC?

You pay interest only on the drawn amount. On a $700,000 construction mortgage with draws released over 12 months at a 7.2% rate, expect roughly $25,000–$30,000 in interest during the build period. Budget for this plus your existing housing costs during construction.

What BC permits are required before a construction mortgage can close?

Lenders require a valid building permit before funding the first draw. Builder HPO registration under BC's Homeowner Protection Act is also required. A fixed-price construction contract (not cost-plus) is universally required by lenders.

What happens if the build goes over budget?

Cost overruns are the buyer's responsibility. The lender will not increase the approved mortgage mid-construction. Any additional costs must come from the buyer's own contingency funds. Budget a 15-20% contingency beyond the contract price — if you don't use it, you're fortunate.

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