Construction financing in Ontario: draw schedules, private lenders, and what lenders look for

Construction financing is the most complex product in residential mortgage lending. It requires a lender to underwrite not just the property as it exists today, but the project as it will exist when complete, the contractor's competence, the budget's realism, the timeline's achievability, and the borrower's capacity to see it through. With 15 years in private lending and firsthand experience in residential home building and real estate investing, I've financed projects across the GTA and Ontario that banks turned away, couldn't move fast enough on, or simply didn't understand. This guide tells you everything you need to know to get your construction project funded and finished.

What Is Construction Financing in Ontario?

A construction loan in Ontario is a short-term financing facility used to fund the building of a new home, major renovation, or development project. Unlike a standard mortgage, where the full loan amount is advanced at closing, construction financing is released in stages, called draws, as verified construction milestones are reached.

This staged funding structure exists for a straightforward reason: it protects both the lender and the borrower. The lender advances funds only against verified completed work, reducing exposure if the project stalls. The borrower accesses capital progressively, limiting the amount of interest-bearing debt outstanding at any given stage of the build.

Construction financing in Ontario is used for:

• Custom home builds on owned or newly acquired land
• Spec home construction (building a residential property for sale)
• Major home renovations exceeding the scope of conventional home equity lending
• Residential development projects including multi-unit builds
• Land development and servicing prior to construction
• Gut renovations and structural overhauls in the GTA and surrounding markets

Once construction is complete, the short-term construction loan is typically replaced by a conventional or private mortgage against the completed property. Understanding this transition, from construction financing to permanent financing, is critical to planning any build project in Ontario.

Private Construction Lender vs. Bank Construction Loan in Ontario

Understanding the difference between bank construction financing and private construction loans in Ontario is essential for any builder or developer in the GTA or broader Ontario market. These are not interchangeable products, the right choice depends entirely on your project profile, timeline, and borrower situation.

For experienced builders, developers, and self-employed borrowers in Ontario, private construction financing through a MIC offers the speed and flexibility that bank timelines simply cannot match. If your build timeline is fixed, your contractor has a start date, and waiting six weeks for a bank approval means losing the window, a private construction lender with 24–48 hour approvals is the rational path.

“The biggest mistake I see Ontario builders make is underestimating how long bank construction approvals take. By the time they come back to us, they've already missed their contractor's availability window and sometimes their closing on the land. Time is the most expensive thing in a construction project.”

— Guido DiFranco, President & CEO, Founder — Richview Capital MIC

How Construction Draw Schedules Work in Ontario

The draw schedule is the operational backbone of any construction loan. It defines how much of the total loan facility is released at each stage of construction, based on verified completion milestones. Understanding how draw schedules work is essential before you break ground, and before you sign any construction financing commitment.

A standard residential construction draw schedule in Ontario typically follows five to six stages:

1. Foundation / Slab Complete: 10–15% of loan. The first draw is typically released once the foundation is poured and inspected. This advance often also covers land acquisition or preliminary costs, depending on the loan structure.
2. Lock-Up / Framing Complete: 20–25% of loan. Framing, roofing, exterior sheathing, and windows are installed. The structure is "locked up" against the elements. An inspector or cost consultant confirms this milestone before the draw is advanced.
3. Mechanical Rough-Ins Complete: 15–20% of loan. Plumbing, electrical, and HVAC rough-ins are completed and passed inspection. This stage represents a significant cost investment and draw amounts reflect that.
4. Drywall / Interior Progress: 15–20% of loan. Insulation, drywall, and interior work to the point where finishes can begin. The property is approaching substantially habitable condition.
5. Substantial Completion: 20–30% of loan. The largest draw, released when the building is substantially complete and an occupancy permit has been issued or is imminent. Cabinets, fixtures, flooring, and final finishes are installed.
6. Final Holdback Release: 5–10% of loan. A final holdback retained until the project is fully complete, all contractor liens are cleared, and a final inspection confirms completion. This holdback protects against late-stage deficiencies.

Exact draw percentages vary by lender, project type, and the specific loan agreement. Richview Capital establishes a custom draw schedule appropriate to each project at the time of commitment, not a generic template applied to every build.

Important on draw timing: Every draw advance requires verification that the claimed construction stage has been completed. Most construction lenders require an inspection by a qualified cost consultant before releasing funds. Factor 3–7 business days from inspection to advance into your project cash flow planning, your contractor payment schedules need to account for this.

Interest-Only Payments During Construction: How It Works

A feature that surprises many first-time construction borrowers: during the active construction period, you typically pay interest only on the amount that has been drawn, not on the full loan commitment.

If your total construction facility is $1,500,000 but only $600,000 has been advanced to date, your interest charges are calculated on $600,000. This interest-only structure during construction significantly reduces carrying costs in the early stages of the build, when cash flow is typically most constrained. As draws advance and more capital is outstanding, interest costs grow, but by that point, construction progress should be confirming the project is on track.

This structure is one of the key reasons experienced builders prefer construction-specific financing over drawing down a lump-sum mortgage or line of credit against the land.

What Private Construction Lenders in Ontario Actually Look For

When Richview Capital evaluates a construction financing application in Ontario, we assess a different set of factors than a bank's automated underwriting system. Understanding what experienced construction lenders prioritize helps you prepare a stronger application and increases your probability of fast approval.

Land Value and Equity Position

The foundation of any construction loan approval is the value of the land being built on. Owned land with established market value provides the first layer of security. The combined LTV across the land value and projected construction costs, measured against the completed property's appraised value, is the central risk metric. A strong equity position in the land significantly accelerates approval.

Realistic, Detailed Construction Budget

One of the most common red flags in construction loan applications is an unrealistic budget. Experienced construction lenders have seen enough projects to know when a cost estimate is aggressive to the point of being dangerous. A detailed, line-item budget from a credible general contractor, with contingency allowances of 10–15% for cost overruns, demonstrates that the borrower and builder have done the work. Budgets that are too tight are a liability, not an asset.

Contractor Credentials and Track Record

The quality of your general contractor matters to a private construction lender. We want to see a licensed, experienced builder with a verifiable track record of completed residential projects in Ontario. References, past project documentation, and proof of WSIB coverage and liability insurance are standard requirements. A strong GC isn't just good for your project. It strengthens your financing application.

Building Permits and Municipal Approvals

An Ontario building permit, or at minimum a confirmed permit application in progress, is a prerequisite for most construction loan closings. Municipal approvals confirm that the proposed construction is legal, compliant with zoning, and has been reviewed by the appropriate authorities. Projects attempting to fund before permits are in place introduce regulatory risk that most responsible lenders will not absorb. Do not start the financing process without your permit in hand or in active progress.

As-Complete Property Appraisal

Most construction lenders require an "as-complete" appraisal: a certified appraiser's opinion of the market value of the property as it will exist once construction is finished. Based on the building plans, specifications, and comparable sales in the market, this appraisal anchors the LTV calculation against the completed asset, not just the current land value.

Clear Take-Out Financing Plan

Construction loans are short-term by design. Every private construction lender wants to understand how the loan will be repaid or replaced at the end of the construction term. The repayment plan, whether a conventional mortgage approval, sale of the completed property, or refinancing with a long-term lender, needs to be credible and documented before the construction loan closes.

Documents Typically Required for a Construction Loan in Ontario

• Proof of land ownership or purchase agreement
• Current land title search and survey
• Detailed construction budget and cost breakdown from the general contractor
• Architect or designer plans and specifications
• Building permit (or confirmed permit application with reference number)
• General contractor credentials, license, WSIB certificate, and liability insurance
• As-complete appraisal from a certified Ontario appraiser
• Borrower identification and financial overview
• Evidence of permanent financing plan or sale strategy
• Tarion enrollment (for new builds being sold, confirm with your builder if applicable)

Construction Financing in the GTA: Vaughan, Woodbridge, and the 905

The Greater Toronto Area, including Vaughan, Woodbridge, Richmond Hill, King City, and the surrounding 905 communities, has one of the most active custom home construction markets in Canada. Lot values are substantial, build costs are elevated relative to the national average, and the pipeline of experienced general contractors is competitive. Financing in this market requires a lender who understands it from the inside.

At Richview Capital, a significant portion of our construction financing portfolio is concentrated in the GTA's residential custom build market. We understand land values in Woodbridge and Vaughan, the contractor landscape across York Region, and the municipal permit timelines in the region's municipalities. That local knowledge translates directly into faster, more confident underwriting decisions.

For custom home builders in the GTA working with lots in the $800,000 to $2,000,000+ range, private construction financing provides the speed and flexibility that allows projects to start on time, without institutional delays derailing contractor relationships and build schedules that can take months to reassemble.

Construction Financing for Major Renovations in Ontario

Major renovations, full gut renovations, additions, structural overhauls, can qualify for construction-style financing in Ontario when the scope and cost exceed what a standard home equity line of credit can accommodate. The underwriting approach is similar to new construction: the lender assesses the property's current value, the renovation scope and cost, the as-complete value after renovation, and the LTV position.

Renovation financing is particularly relevant for:

• Ontario homeowners who purchased older properties with the intention of significantly improving them
• Buyers of distressed or undervalued properties in established GTA neighbourhoods
• Investors repositioning properties for sale or rental in Ontario's residential market
• Homeowners whose renovation scope has outgrown their existing HELOC or line of credit capacity

Bridging from Construction to Take-Out Financing

One of the most important conversations to have before starting any construction project is about your permanent financing plan, what happens to the construction loan when the build is complete. At Richview Capital, we discuss this before we commit, not after. The construction loan should be structured for where it's going, not just where it starts.

The three most common paths at the end of a construction term in Ontario:

1. Refinance with an institutional lender: If your project is complete, you're creditworthy, and the property appraised as expected, a conventional or bank mortgage at lower long-term rates replaces the construction facility. This is the most cost-effective outcome and the target for owner-occupied custom homes.
2. Bridge to a longer-term private mortgage: If the completed property needs more time before institutional financing is viable, transitioning to a term private mortgage with Richview Capital provides breathing room to stabilize before refinancing.
3. Sale of the completed property: Spec builders and developers fund the construction with the intent to sell on completion. The construction loan is repaid from sale proceeds and the margin between build cost plus financing and sale price is the project return.

“Construction financing only works when the end is planned from the beginning. The most common problem we see isn't during the build, it's builders who reach substantial completion and realize they haven't secured their permanent financing. Plan your exit before you pour your foundation.”

— Guido DiFranco, President & CEO, Founder — Richview Capital MIC

Construction Loan FAQ: Common Questions from Ontario Builders

Can I get construction financing if I'm self-employed?

Yes. Private construction lenders in Ontario evaluate applications based on the land equity, project quality, contractor credentials, and as-complete LTV, not T4 income or bank qualification formulas. Self-employed borrowers are among the most common applicants for private construction financing in the GTA.

What LTV does Richview Capital lend on construction projects?

Construction financing LTV is calculated against the as-complete appraised value of the property, not the current land value alone. The specific LTV offered depends on the project, location, budget quality, and overall deal structure. Our team will provide a clear commitment letter outlining all terms before you proceed.

Do I need a Tarion warranty for a construction loan?

Tarion enrollment is required for new homes being sold to third parties in Ontario. If you are building a home for your own occupancy and not for resale, Tarion may not be required, but confirm this with your builder and legal counsel before proceeding. Some lenders may have specific requirements regardless.

What is the difference between a construction mortgage and a construction loan?

The terms are used interchangeably in Ontario's private lending market. Both refer to a staged-advance short-term financing facility secured against a property under construction. The key mechanics, draw schedules, interest-only payments on drawn amounts, as-complete appraisal, are the same regardless of what the product is called.

Can I use a private construction loan if the bank already declined me?

Yes. Bank declines on construction projects often come down to income verification, credit history, or project complexity, none of which are disqualifying factors for a private construction lender. If your land has equity, your budget is credible, your contractor is qualified, and your repayment plan is solid, Richview Capital can evaluate your project on its merits.

How long does construction financing approval take at Richview Capital?

Initial decisions come within 24–48 hours of receiving a complete application with supporting documentation. The speed of closing after approval depends on how quickly the appraisal, legal work, and permit documentation can be assembled. Well-prepared applications move significantly faster.

Why Experienced Ontario Builders Choose Private Construction Lenders

In Ontario's GTA custom home and development market, the most experienced operators no longer default to bank financing for construction. They use private construction lenders deliberately, for specific projects, at specific stages, for specific reasons.

Those reasons consistently include: faster approvals that let them lock contractors and land simultaneously, flexible draw structures that match the actual pace of construction rather than a bank's administrative calendar, access for projects or borrower profiles that institutional lenders won't touch, and direct relationships with lenders who understand construction from experience, not from a credit policy manual written by someone who has never been on a job site.

At Richview Capital, our founder's background in residential home building and real estate investing means our construction financing team understands what a realistic budget looks like, what a strong contractor looks like, and what a credible repayment plan looks like, because we've built it from the inside.

• Construction Financing Ontario
• Construction Loan Ontario
• Private Construction Lender GTA
• Custom Home Build Financing
• Draw Schedule Ontario
• Construction Mortgage Ontario
• Spec Home Financing
• Renovation Financing Ontario
• Construction Loan Self Employed
• New Home Build Vaughan Woodbridge

Richview Capital MIC is a licensed Mortgage Investment Corporation (Mortgage Administrator License #13171) and a member of ONMICA. For more on our firm, see About.