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Financing options
1. Build with Cash + Cash-Out Refinance
For buyers with sufficient liquidity, the simplest option may be to complete construction with their own funds and refinance once the home is finished. For cash-out transactions, banks are generally more conservative, typically financing around 60% LTV and potentially up to 70%, depending on the property and borrower profile. Terms also tend to be shorter, generally up to 15 years. This can be a good option for buyers who can fund construction but wish to recover part of their invested capital afterward.
2. Builder Financing Until Mortgage Closing
Technically, the buyer could negotiate with the builder to pay a portion during construction and leave a balance outstanding until the property reaches approximately 90–95% completion, at which point the bank could appraise the finished property and provide traditional mortgage financing. However, this is not very common, since the builder would essentially be financing part of the construction with its own capital while waiting for the bank to pay the balance. We have seen very few cases where this works, so practically speaking, options 1 and 3 are the stronger alternatives.
3. Construction Interim Loan
A construction interim loan works similarly to a line of credit. The bank approves the facility and makes progressive disbursements as construction advances. During construction, the borrower pays interest only on the amount actually disbursed. As a general reference, the construction-phase rate is usually approximately 2 percentage points above the prevailing mortgage rate. Once the home is completed, the interim facility converts into permanent financing, transitioning into a regular long-term mortgage under the mortgage terms available at that time. For this structure, the bank will evaluate the client’s financial profile similarly to a regular mortgage, with the main additional component being the construction budget and supporting construction information.
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