Yes, if you do not yet have construction drawings or a finalized budget, you must close with residential financing through an A-lender, alternative lender, or private lender. The key is structuring that initial loan so you can pay it off and replace it with commercial construction money once your plans are ready.
CMHC construction financing can go up to 95% of loan-to-cost, which includes the site purchase price plus your hard and soft construction costs. However, CMHC will ultimately fund the lower of that 95% figure or the amount the completed property qualifies for based on your exit strategy.
Conventional financing is generally more lenient, moves faster, and does not cap your exit potential because you can refinance into CMHC after completion for an equity takeout. While the interest rate is higher—typically prime plus 2% or 3%—it preserves flexibility if your completed net operating income and property value exceed initial projections.
Dalia emphasizes planning for worst-case scenarios such as cost overruns and delays before starting your project. This is why validating your construction budget, timeline, and exit strategy upfront is critical to ensuring you have sufficient financing and contingency plans in place.
Yes, some conventional lenders will allow a vendor takeback second mortgage or a second mortgage behind their first loan to reduce your upfront cash injection. This can be structured as long as the lender can see a viable exit strategy where their loan will be paid out upon project completion.
