What is a Construction Mortgage?
A construction mortgage is a short-term financing option designed for building a new home or completing a major renovation. Unlike a regular mortgage, funds are advanced in multiple stages—known as ‘progress draws’—based on construction milestones. Each draw is released after an inspection confirms that work has been completed according to the approved schedule.
During construction, borrowers typically make interest-only payments on the amount drawn. Once the build is complete and the property is ready for occupancy, the loan converts to a standard amortizing mortgage with principal and interest payments.
Key Eligibility Requirements in Surrey (2025)
To qualify for a construction mortgage in British Columbia, you’ll generally need:
- A detailed construction plan and timeline, including contractor quotes and municipal permits.
- A minimum down payment or equity contribution of 20%–30% of the total project cost (depending on lender).
- Proof of income and credit stability to service interest payments during the build.
- A qualified builder or general contractor (some lenders allow self-builds with strict oversight).
- An appraised value estimate showing the projected completion value of the property.
How Construction Mortgages Work
- Draw Schedule: Funds are released in 3–5 stages—typically land purchase, foundation, framing, lock-up, and completion.
- Inspections: Each draw requires inspection or progress verification by an appraiser or lender-approved inspector.
- Interest-Only Payments: During construction, payments apply only to funds drawn; interest accrues monthly.
- Conversion: Once the home is complete and occupancy permit issued, the loan converts to a conventional mortgage.
Typical Costs & Considerations (Verified 2025 Data)
- Construction loan rates are generally higher than standard mortgage rates due to increased lender risk.
- Lenders may charge administration or draw inspection fees (often $250–$500 per draw).
- Home construction costs in Metro Vancouver and Surrey remain elevated, averaging $275–$375 per square foot depending on design, materials, and contractor.
- A contingency reserve of at least 10%–15% is recommended to cover unforeseen costs.
- Building permit approval and municipal compliance are required before the first draw is advanced.
Why Choose a Construction Mortgage in Surrey
- Build your custom dream home on owned or newly purchased land.
- Fund significant renovations or expansions that add long-term value.
- Finance large projects with structured, milestone-based draws.
- Combine with a take-out (end) mortgage for a seamless transition post-construction
Common Challenges and How to Avoid Them
- **Budget overruns:** Labour and material costs can fluctuate. Build a 10–15% buffer.
- **Timeline delays:** Missed inspections or weather setbacks can delay draws—plan for flexibility.
- **Builder risk:** Choose a licensed, insured contractor with a proven track record.
- **Interest rate changes:** Lock-in or hedge early if you plan to convert to a fixed-rate mortgage after construction.
How Sandhu & Sran Mortgages Helps You
- Assess your project plan and eligibility for lender programs.
- Connect you with construction-friendly lenders offering competitive draw schedules.
- Coordinate documentation, inspections, and fund releases to keep the project on time.
- Prepare your long-term financing strategy—converting to a permanent mortgage smoothly after completion.