A construction loan is a popular financing option used for financing building or construction-related needs such as constructing a new home, funding the contractor, or completing a home renovation project. Just like other loans, construction mortgages also have different categories. Here is the list of top financing options in Canada, which will help you learn about the different construction-related loan options. If you are looking for the best construction loan options in Canada, then you should check out the deals offered by Alpine Credits.
Table of Contents
1. Land acquisition loan
Land acquisition loans are ideal for home buyers, builders, and homeowners interested in buying bare land. Developers and builders usually take this type of loan for their clients and sell them in subdivided lots, such as undeveloped bare land, unserviced subdivided lots, or partially developed bare land.
2. Home improvement mortgage
A home improvement mortgage allows individuals to borrow money for home renovation, funding home repairs, kitchen remodelling, or other minor improvements. Generally, the value of home improvement mortgages is calculated according to the property’s purchasing price. Besides, the lenders don’t credit the entire mortgage amount upfront.
For example, if you borrow $40,000 for home improvement, the lender may credit 20% of the mortgage upfront. The additional funds are credited into the borrower’s account once the selected improvements are completed.
3. Site development loan
Homebuyers, builders, or developers looking forward to constructing a building on unserviced land will need funds for extensive landscaping, such as installing sewer lines, utility lines, roads, etc.
Site development loans come in handy for such purposes. Like a home improvement mortgage, the money for this loan is released in different stages. Most lenders charge the interest only on the drawn-down amount instead of the entire loan value.
4. Building construction loan
Suitable for funding new construction, an extension of the property, renovation, and other similar purposes, building construction loans are a perfect solution for homebuyers, contractors, and homeowners. The funds from a building construction loan can also be used to buy building materials, purchase land, and pay labour, architects, and contractors. They can also be used to pay for building permits and environmental inspections and associated legitimate expenses.
5. Construction bridge loans
Property owners, builders, or developers sign up for a construction bridge loan for either beginning their project or completing a partially completed construction project that requires additional funds. Generally, property developers apply for this loan to maintain the momentum of commercial building projects.
Construction bridge loans are short-term financing options that cover only the construction cost. The loan amount for these loans is based on the costs required for building the property instead of the property value, which could be achieved after project completion.
6. CMHC rental construction financing
The Canada Mortgage and Housing Corporation (CMHC) Rental Construction Financing Initiative is suitable for financing multi-unit rental building construction and other similar projects. One of the significant facts about this construction financing option is that the loan amount is either 100% of the construction project costs or 85% of the asset’s lending value. The minimum CMHC Rental Construction Financing is $1,000,000.
Moreover, CMHC rental construction financing facilitates individuals with CMHC mortgage loan insurance at no extra cost. This financing option comes with a fixed interest rate with a minimum 10-year term and an amortization period of up to 50 years. The application fee for CMHC financing is $200 (for a residential unit). And if the loan amount is more than $100,000, the application fee is 0.3% of the borrowed amount (non-residential unit).
7. Construction financing take out loans
You can get long-term and short-term transition construction financing and take out loans. The loans of this category are comparatively complex and trickier. Generally, these loans are obtained at the last minute when a construction project requires more funds for completion. Take-out loans are also an excellent option to combat extenuating circumstances like construction bridge financing.
8. Quebec downtown housing grant program
Counted among the most popular housing grant programs Quebec Downtown Housing loan option facilitates the developers with a 90% subsidy for the property taxes levied on construction projects in Quebec’s downtown area. However, there are certain conditions attached to this grant program. The subsidy is given to new three-story buildings with at least four units.
Large buildings get subsidies for a longer duration, which benefits the developers. The duration for seven stories buildings is up to 120 months. In contrast, the grant duration for three-story buildings is 86 months or more. Besides, LEED-certified buildings are eligible for a 90% subsidy, whereas standard buildings get only a 75% grant.
9. CMHC national housing co-investment fund
The CMHC National Housing Co-Investment Fund is created to finance Canada’s socially inclusive and energy-efficient housing development projects. This co-investment fund program is suitable for mixed-use, mixed-income, and mixed-tenure housing purposes. Funds can be received up to 95% loan-to-cost value. It’s an easily accessible, low-interest financing option for builders.
The loan duration can go up to 10 years, and the fixed interest rate. Besides, builders can also sign up for a 50-year amortization period. Construction projects with limited cash flow can take advantage of forgivable loans.
Construction loan eligibility
The eligibility criteria for construction loans are similar to conventional mortgages.
- The applicants need to have adequate income resources. You need to provide the necessary documents validating your capability of repaying the loan amount.
- Plus, you should have sufficient funds to meet the basic construction expenses.
- Some conventional mortgage providers also require a collateral asset such as an unfinished home against the loan construction loans are comparatively riskier.
- The lender checks the credit score, income sources, and debt levels of the applicant before approving the construction loan.
- Note that the eligibility requirements for building and construction loans are complex compared to regular mortgages.
A construction loan is a perfect and easy option to arrange funds for home renovation and construction. It allows individuals to fund the construction of their home or a commercial building or even complete an ongoing construction project.