Small builders and infill developers rarely finance a project with one loan. Money is usually raised in stages that follow the project's risk: buying land, getting it approved and serviced, building, and finally holding or selling the finished units. This overview is for small builders, multiplex developers and investors. It is not aimed at households buying a single home, who would normally use a construction mortgage instead.
Stage 1: raw land loans
A land loan finances the purchase of a lot or acreage that has no approvals or construction underway. Because raw land produces no income and can be hard to sell quickly, lenders usually treat it as higher risk than a built property. Expect a larger down payment, a shorter term and a higher rate than a mortgage on a finished home; exact terms vary by lender. Lenders will look closely at zoning, access, environmental issues and the borrower's plan and experience.
Stage 2: pre-development and servicing
Between buying land and breaking ground, costs pile up: planning and zoning applications, architectural and engineering drawings, studies, permits and municipal charges, plus servicing such as roads, water and sewer. Some lenders offer pre-development or servicing loans for this phase, often secured by the land and repaid from the construction loan. Approvals are the key risk; a delayed or refused application can leave a borrower paying interest on land that cannot yet be built on.
Stage 3: construction financing
Construction loans are paid out in draws as work is completed and inspected, rather than as a lump sum. Lenders usually require a budget, a schedule, permits, a qualified builder, and cost reports from a quantity surveyor or inspector before each draw. Interest is typically charged only on the amount drawn. Cost overruns are the main danger: if the budget runs short, the borrower generally has to fund the gap before more money is released.
For purpose-built rental projects, CMHC's Apartment Construction Loan Program is one federal option. For standard rental and seniors housing, CMHC lists a minimum of 50 self-contained units, a loan of at least $1 million, up to 100% loan-to-cost on residential space and up to 75% on non-residential space, and up to a 50-year amortization. Borrowers must meet affordability requirements for at least 10 years and arrange take-out financing for the end of the term. Eligible borrowers include for-profit and non-profit developers and other levels of government.
Stage 4: construction-to-term or take-out
When the building is finished, the short-term construction loan is repaid either by selling units or by a long-term "take-out" mortgage once the property is leased up. Some lenders combine both in one construction-to-term loan. For rental properties with five or more units, CMHC's MLI Select insurance offers more flexible terms in exchange for commitments on affordability, accessibility and climate compatibility. On new construction, CMHC's published tiers allow loan-to-cost of up to 95% and amortization of up to 50 years at the highest point levels, with a minimum of five units for most projects.
Risks and the exit plan
- Approval risk: zoning, permits or servicing take longer than planned.
- Cost risk: materials and labour come in over budget.
- Market risk: rents or sale prices fall before completion, weakening the take-out.
- Rate risk: interest on short-term loans changes during a long build.
- Exit risk: no long-term lender or buyer is ready when the construction loan matures.
A written exit plan, showing who repays each loan and when, is often the first thing a lender asks for. Gap or subordinate financing from private lenders can fill shortfalls, but it costs more and should be checked against the provincial regulator's licence register via the licence-check page.
Who to talk to
Development financing differs widely by lender. A commercial mortgage broker can compare land, construction and take-out options, and construction lenders can explain their draw and reporting requirements before a project is committed.
Sources
- Canada Mortgage and Housing Corporation, Apartment Construction Loan Program: Rental Housing and Seniors Housing, 2024-11-06. Accessed 2026-11-02.
- Canada Mortgage and Housing Corporation, MLI Select, 2026-09-21. Accessed 2026-11-02.
General information only, not financial or legal advice. Program terms are set by CMHC and individual lenders and change over time; confirm current requirements directly. Mortgage Directory does not verify or endorse listed professionals.
