TLDR: Only one or two out of every ten projects we build use construction financing, and those are almost always custom homes or development projects rather than additions. A $600,000 addition in Toronto is usually funded with a mixture of cash or liquid assets, a home equity line of credit, a refinance, and sometimes proceeds from selling another property. If you do use a construction mortgage, expect your own money to start the project and carry it through the first 25 to 40 percent of the construction value before the lender starts releasing draws.
Most homeowners who reach us about an addition have already had the harder argument with themselves. They have priced what $1.5M buys two neighbourhoods over, added up the land transfer tax and the commission, and decided to stay and build instead. We wrote the math behind that decision in Renovate or Move: The Real Toronto Math, and this article deliberately starts where that one stops.
Because once the decision is made, the question changes, and almost nothing written about Toronto additions answers the new one. Every online thread about a $600,000 addition argues about whether to do it. Very few say how the money actually arrives, in what order, and who is out of pocket while the work is going on.
That second question is the one that delays projects. It is a really good idea to start planning months in advance of any key milestones, whether that is a refinance closing or an asset maturing, because we have watched it take clients months to figure out.
What Most Homeowners Get Wrong
The assumption is that a project this size has to mean a construction mortgage.
It usually does not. A lot of the time it is a mixture of cash or liquid assets and a HELOC or a refinance. Sometimes there are sale proceeds from another piece of real estate in the mix as well. Construction financing shows up on one or two out of every ten of our projects, and when it does, it is usually for a larger scope: a full custom home or a development project, not a rear addition on a semi in East York.
There is also the part of this that never makes it into a financing article. Help from family is common. Multiple clients have told us they received some level of help from family, whether that was a parent cosigning or straight up giving them money to fund a portion of the build. It is not a rare arrangement in the East York and Scarborough additions we price most often, and there is nothing to be embarrassed about in it. It does mean the conversation has to happen early, because a gift that arrives in March does not help a project that needs money in January.
The other thing homeowners underestimate is how much the choice of lender matters. Depending on who your bank or mortgage lender is, the process can go smoothly or not smoothly at all. Two clients with identical equity positions and identical approvals can have completely different experiences getting money released, and you do not find out which one you have until the project is underway.
The lender schedule and the builder schedule are not the same schedule
This is the piece nobody in Toronto has written down, and it is where most of the confusion lives.
We bill on milestones. A construction mortgage does the opposite: it releases money after an inspection confirms the work is already finished. Read those two sentences together and the gap is obvious. Somebody has to pay for work before the lender will acknowledge it exists.
That somebody is the homeowner, by design. Any lender doing milestone financing is going to need to see a certain amount of the construction value carried by you, and that portion usually starts the project off and carries it through the first 25 to 40 percent. On a $600,000 addition, the arithmetic on those percentages is $150,000 to $240,000 of your own money going in before the lender draw cycle takes over.
That is not a lender being difficult. It is the mechanism that keeps a project liquid between milestone payments, and it keeps your builder out of the financing business. Any builder who is comfortable carrying that gap for you is not running a savvy business, and a builder who is quietly financing your project is a builder with a cash flow problem you will eventually inherit.
The money that shows up after the build cannot fund the build
Two sources of money get counted too early.
The first is the enhanced HST rebate. It is real money and it can be significant, but it is claimed after the home is complete, which means it arrives long after the last draw has been spent. We covered who actually qualifies in Ontario's Enhanced HST Rebate. The second is rent from a basement suite, which cannot start until there is a suite to rent. Neither one belongs in the column that pays for construction.
The BVM Approach
We have never had a client lose funding partway through one of our projects. That is not luck, and it is worth being precise about why.
Before we take on any project we make sure the proper amount of financing is in place, and that the client understands our draw schedule well enough to maintain liquidity throughout the build. That conversation happens in pre-construction, alongside the scope and the budget, not after the excavator is booked. A client who knows when each payment is due can line their own money up against it. A client who is surprised by the third draw is the one who ends up asking a lender for an exception at the worst possible moment.
This is also why experience with construction financing specifically is worth asking about when you interview builders. There are tricks of the trade and nuances that separate a project that finishes from one that stops, and they are not obvious from the outside.
Drive past enough sites in this city and you will see houses that have not moved in months, wrapped in the same weathered poly they were wrapped in last spring. Any project you see at a standstill may be in exactly this situation. The framing is done, the money ran out, and nobody involved has a way forward.
Our side of the schedule is set out in Progress Draw Scheduling. The short version is that our milestones are tied to completed, verifiable stages of work, which is also what makes them legible to an inspector working for a lender. A draw schedule built around calendar dates rather than finished work is the kind of thing that fails an inspection and stalls a release.
Key Takeaways
Construction financing appears on only one or two out of every ten projects we build, and almost always on custom homes or development projects rather than additions.
Most Toronto additions are funded by a mixture: cash or liquid assets, a HELOC or a refinance, and sometimes proceeds from another property sale.
On milestone financing, the money belonging to the homeowner typically starts the project and carries the first 25 to 40 percent of construction value. On a $600,000 addition that is $150,000 to $240,000 before lender draws begin.
Your choice of lender changes the experience as much as your rate does. Start the financing conversation months before any refinance or maturing asset you are counting on.
Help from family, through cosigning or a direct gift toward part of the build, is common and should be confirmed on a date, not in principle.
The HST rebate and future basement rent arrive after construction. They are not construction funding.
Frequently Asked Questions
Do I need a construction mortgage for a home addition in Toronto?
Usually not. One or two out of ten of our projects use construction financing, and those tend to be custom homes and development projects. Most additions are funded with a combination of liquid cash, a HELOC, a refinance, and sometimes proceeds from a property sale. A construction mortgage adds an inspection and release cycle to your project, so it is worth using when you need it and worth avoiding when you do not.
How much of my own money do I need before construction starts?
If you are on milestone financing, plan on carrying the first 25 to 40 percent of the construction value yourself. Lenders want to see your money in the project before theirs, and they release against work that is already complete. The exact figure depends on your lender, which is the reason to have that conversation before you sign a construction contract rather than after.
Will my builder wait for my lender to release funds?
We will not, and you should be cautious of one who says otherwise. A builder financing your milestones is carrying your project on their balance sheet, which is how subcontractors go unpaid and schedules quietly slip. The draw schedule exists so that everyone knows which payment is due at which stage, and so you can keep enough liquidity to meet it.
Ready to Put Real Numbers Against Your Project
If you are working out whether your equity, your cash, and your timeline actually support the addition you want, the most useful next step is a conversation with someone who has seen how these projects get funded. Book a 30 minute project consultation and bring whatever your lender has told you so far.
If you would rather start with a number, our home addition cost calculator will get you to a realistic range in a few minutes, and our $7,500 Design and Feasibility Sprint takes it further: a real scope, a real budget, and a zoning read on your lot before you commit to a build.