Building a custom home in Toronto is as much a financing project as it is a design and construction project. The right construction loan keeps cash flowing to trades, aligns inspections with draw releases, and helps you reach occupancy without surprises. If you’re budgeting for custom home building cost in Toronto, remember lenders weigh loan-to-cost against as-completed value; a clear line-item budget (hard and soft costs, permits, development charges, and contingency) strengthens approvals. Here’s a clean, Toronto-specific guide—updated for accuracy on HST, holdbacks, permits, lender expectations, and the key factors that shape custom home building cost in Toronto.
What is a construction loan?
A construction loan is short-term financing that funds your build in stages. Instead of receiving one lump sum, you get money as the home reaches agreed milestones. During construction you typically make interest-only payments on funds advanced. When the home is complete and granted occupancy, the loan usually converts to a standard mortgage (your “take-out” mortgage).
Common structures
- Progress-draw mortgage: Funds are advanced at milestones (e.g., foundation, lock-up, rough-in/drywall, completion). An appraiser or inspector confirms progress before each draw. This is the most common path for custom homes in the GTA.
- Completion mortgage: The lender advances funds only when the home is 100% complete. More typical with production builders; less flexible for truly custom builds.
What lenders look for
Lenders finance plans—not hopes. Expect to provide:
- Land & title details: Address, purchase price or appraised value, survey, servicing status.
- Permits & approvals: Building permit, zoning compliance, and any Committee of Adjustment approvals; tree protection and site-plan notes where applicable.
- Stamped plans & specs: Architectural drawings, structural engineering, energy compliance, and a detailed scope of work.
- Budget & timeline: Line-item budget covering hard and soft costs, plus a 10–15% contingency; critical-path schedule.
- Builder credentials: In Ontario, new-home builders must be HCRA-licensed and provide Tarion warranty. Working with a licensed builder is a major plus.
- Insurance: Course-of-construction (builder’s risk) and liability/WSIB coverage.
- Exit plan: Proof you can convert to a conventional mortgage at completion (income, credit, and as-completed value support).
Example draw schedule (varies by lender)
Percentages and stage names differ across banks and credit unions. Use this only as a planning template.
Notes:
- Appraisal/inspection fees are usually charged per draw.
- Ontario’s Construction Act requires a 10% basic holdback on amounts payable under construction contracts. Release timing follows the Act, including annual-release rules (unless liens are preserved).
How much can you borrow?
Most lenders cap loans at the lower of a percentage of total project cost (loan-to-cost) and a percentage of as-completed value (loan-to-value). Plan to bring 20–35% equity. Existing land value can count toward your equity; a refinance or equity take-out on the lot can help structure this.
Rates, fees, and cash flow
- Rates: Variable and interest-only during construction; charged only on funds advanced.
- Fees & closing costs: Lender and/or broker fees, legal and title insurance, multiple appraisal/inspection fees, survey and permit costs, draw administration by your lawyer.
- Reserves: Carry a buffer for temporary power/heat, winter conditions, security fencing, waste bins, testing, and potential permit or development-charge changes.
Budgeting beyond bricks: don’t forget soft costs
A complete GTA budget includes:
- Design & approvals: Architecture, interior design, engineering, surveys, soil reports, energy modeling.
- Permits & municipal fees: Building permit, development charges where applicable, parkland dedication (project-dependent), tree protection, right-of-way permits.
- Site & servicing: Utility laterals, temporary services, hoarding/fencing, traffic control where required.
- Insurance & inspections: Course-of-construction, liability/WSIB, inspections and appraisals.
- Contingency: 10–15% for unknowns and pricing volatility.
HST: the practical version
HST treatment depends on who is considered the “builder” and the home’s intended use.
- Buying from a licensed builder: HST is typically included/charged by the builder in the contract price; you may qualify for a new-housing rebate.
- Owner-built primary residence: You usually pay HST on materials and subcontracted services as you go and may be eligible for new-housing rebates.
- Self-supply (FMV) self-assessment: This generally applies if you’re considered a “builder” for tax purposes or if you build to rent or sell. In those cases, you may need to self-assess HST on the home’s fair market value at first occupancy/tenancy.
Always confirm your scenario with your accountant before you break ground.
Warranty, licensing, and occupancy
- Tarion warranty: New homes built by licensed Ontario builders carry 1-, 2-, and 7-year warranty coverage categories.
- HCRA licensing: Required for new-home builders/vendors in Ontario.
- Occupancy/authority to occupy: The City must sign off under the Ontario Building Code before you move in; your lender typically requires this to convert the loan to a regular mortgage.
Contract models and lender comfort
- Fixed-price contract: Predictable for lenders; builder carries more performance risk. Changes are handled through formal change orders.
- Cost-plus: Transparent and flexible; lender may ask for tighter cost controls, caps, and frequent reporting.
- Hybrid: Fixed price for structure/shell, cost-plus for finishes—useful when design decisions are still evolvin
How Xavieras Custom Homes keeps financing smooth
Xavieras Custom Homes prepares lender-ready packages with a clear scope, milestone schedule, and line-item budget, then coordinates permits and zoning (including Committee of Adjustment, when needed) to keep approvals moving. Throughout construction, we handle draw coordination—scheduling appraisals, supplying progress documentation, and working directly with your solicitor—so funds are released on time. Our team maintains rigorous cost control with weekly budget tracking, early risk flags, and disciplined change-order management, while sequencing trades and inspections to stay aligned with your draw calendar and reduce interest carry. The result is a cleaner path from permit to occupancy, with fewer surprises and steady cash flow from start to finish.
Delving into the Intricacies of Xavieras’s Custom Home Service
It helps. Many lenders want you to own the lot (or have a firm purchase) so land value can count toward your equity.
Sometimes, but it’s harder to finance. Most lenders prefer an HCRA-licensed builder with Tarion coverage to reduce risk and keep draws predictable.
Your contingency covers small swings. Larger changes may require a scope adjustment, added equity, or a budget revision approved by the lender.
Typically at completion/occupancy when the construction loan converts to a standard mortgage. During construction, payments are interest-only on funds advanced.
With permits, drawings, budget, and builder credentials ready, approvals can move quickly. Missing documents are the most common delay.
