A quick note before we start: we're builders, not mortgage brokers or financial advisors, and the specifics of your financing should always come from a lender or broker who knows your full picture. What follows is a general explanation of how construction financing typically works in British Columbia, so you can walk into that conversation already understanding the mechanics, rather than hearing the terms for the first time from your bank.
Financing a custom home is genuinely different from financing a home that already exists, and most people only learn how different once they're already in the process. This is our attempt to explain it ahead of time.
A conventional mortgage is built around an asset the lender can see and appraise on the day the loan closes. A custom home doesn't exist yet on that day, which means a standard mortgage product doesn't really apply. Instead, most custom builds are financed through a construction mortgage (sometimes called a progress-draw mortgage), which releases funds in stages as the home is actually built, rather than as a single lump sum.
This structure protects the lender, since they're financing something that only has value once it's substantially complete, but it also has real implications for how you'll manage cash flow throughout your build.
Instead of one disbursement, a construction mortgage releases money in a series of draws, tied to specific stages of construction: typically something like foundation completion, framing, lock-up (windows, doors, and roof sealed), and rough-in of plumbing, electrical, and mechanical systems, with a final draw at completion. The exact stages and number of draws vary by lender.
Before each draw is released, most lenders require an inspection or progress certification confirming the work has actually reached that stage. This is a normal, expected part of the process, but it does mean draws aren't released the moment work happens; there's typically a short lag while the inspection is scheduled and confirmed.
During construction, you generally pay interest only on the amount that's actually been drawn, not on the full approved loan amount. That means your carrying costs start lower and increase as more of the mortgage is drawn down, which is worth understanding when you're budgeting monthly cash flow through the build rather than just the total project cost.
Read more: What is a Cost-Plus Builder and Why Does it Matter in Greater Victoria?
British Columbia's Builders Lien Act requires a minimum 10% holdback on payments to contractors, retained specifically to protect subtrades and suppliers who have a legal right to file a lien if they aren't paid. That holdback is typically retained for 55 days after a certificate of completion is issued, giving anyone with an unpaid claim time to file before the holdback is released.
Lenders build their own draw schedules around this requirement, which means a portion of your financing is intentionally held back until that period passes, separate from any contingency you've set aside yourself. It's not a sign anything has gone wrong. It's a legal protection built into how construction financing works in this province, and it's worth knowing about before your final draw doesn't arrive quite as quickly as you expected.
Because a construction mortgage is a different risk profile than a standard one, lenders generally ask for more upfront than they would for an existing home purchase. Expect to provide detailed construction cost estimates or a signed contract with your builder, building plans and permits, and in most cases, a larger equity contribution than you'd need for a conventional purchase. Land value, if you already own the lot, can often count toward that equity.
Lenders will also typically want some assurance around who's building the home. Working with a licensed, experienced builder who can provide a clear, itemized cost breakdown makes this part of the process considerably smoother, since it gives the lender the documentation they need to structure the draw schedule with confidence.
Read more: What to Look For When Choosing a Custom Home Builder in Victoria
The number most people focus on is the total project cost, but the timing of when money leaves your account matters just as much. Between the interest-only payments on drawn funds, your existing housing costs if you're living elsewhere during the build, and any gap between a draw stage being reached and the funds actually arriving, it's worth having a real conversation with your lender about cash flow month to month, not just the total mortgage amount.
This is also where a contingency matters beyond its usual purpose. We recommend building in a buffer specifically so that a delayed draw or an unexpected cost doesn't create a cash flow problem partway through, on top of whatever it does to your overall budget.
One of the reasons we invest heavily in pre-construction is that a detailed, itemized budget and a clear construction schedule are exactly what a lender needs to structure your draw schedule properly. Vague allowances and rough estimates make the financing conversation harder, not easier. A plan that's been through proper pre-construction planning gives your lender, and you, a much clearer picture of when money will actually be needed at each stage.
Read more: Pre-Construction Process for Stillwater Custom Homes
If you're planning a custom home and want to understand what your specific project's draw schedule and financing timeline might look like, we'd be glad to talk through what we can control on the construction side, and point you toward the conversations worth having with your lender.
Stillwater Custom Homes & Renovations builds custom homes and renovations across Greater Victoria, the Saanich Peninsula, and the Gulf Islands. We are a licensed BC builder and registered member of Passive House Canada.
A construction mortgage, sometimes called a progress-draw mortgage, releases funds in stages as a home is built, rather than as a single lump sum at closing. This is because a custom home doesn't exist as a finished, appraisable asset on the day the loan is arranged. You generally pay interest only on funds that have actually been drawn, and the mortgage typically converts to a conventional mortgage once construction is complete.
Funds are released at specific construction milestones, commonly something like foundation completion, framing, lock-up, and mechanical rough-in, with a final draw at completion. Lenders typically require an inspection or progress certification before releasing each draw, and the exact stages vary by lender.
British Columbia's Builders Lien Act requires a minimum 10% holdback on contractor payments, to protect subtrades and suppliers who have a legal right to file a lien if they aren't paid. That holdback is typically retained for 55 days after a certificate of completion is issued. Lenders structure their own draw schedules around this legal requirement, so it isn't a sign of a problem with your project.
Generally, a detailed cost estimate or signed builder contract, building plans and permits, and a larger equity contribution than a conventional home purchase requires. If you already own the lot, its value can often count toward that equity. A clear, itemized budget from your builder makes this process considerably smoother.
Beyond the total project cost, it's worth planning for interest-only payments on drawn funds (which increase as more of the mortgage is drawn), any housing costs if you're living elsewhere during the build, and the possibility of a short lag between reaching a construction milestone and the draw actually arriving. A contingency fund helps absorb timing gaps as well as unexpected costs.