May 19, 2025
When building a new home, most people assume they need a big bank to secure construction financing. But in many cases, a private mortgage can actually be the better option—especially if you're facing rigid approval criteria, tight timelines, or unique property situations. In 2025, more buyers are turning to private lenders for new builds, and for good reason.
Traditional lenders typically offer “draw mortgages” during construction, meaning they release funds in stages—often 3 to 4 draws—as the build progresses. While this can work for standard borrowers, these lenders require high credit scores, documented income, and full pre-approvals. And even then, they may only lend up to 65%–75% of the appraised value during construction. That leaves many buyers scrambling for extra funds from savings or costly short-term loans.
Private lenders, on the other hand, are often more flexible. They may fund higher loan-to-value ratios depending on the property and location—sometimes up to 80% of the "as-completed" value. That means you may access more upfront cash to help with lot servicing, materials, or early-stage construction expenses. For some borrowers, this makes it possible to start building when a bank would otherwise say “not yet.”
Another key advantage is speed. With a private mortgage, approvals are typically faster, often within a few days, and based more on the value of the project and the exit plan, rather than lengthy underwriting. This can be a major benefit if your builder is ready to go and you're facing delays with a traditional lender.
Some private lenders will also consider funding 100% of the construction budget if you own the land free and clear, using the land as collateral. This allows for more flexibility in financing the entire project without needing to inject as much personal capital upfront.
And importantly, new construction still qualifies for the standard New Home Warranty (NHW) in Alberta or other provinces—even when financed by a private lender. That means you don’t sacrifice protection when opting for a private mortgage.
Of course, private mortgage rates are higher than those from a bank—typically between 7% and 12%—but many borrowers treat it as a temporary solution. Once the home is built, and the borrower has better income documentation or improved credit, they can refinance into a lower-rate mortgage with a B or A lender.
For self-employed buyers, investors, or those who want more control over the process, a private mortgage for new construction can be a smart way to get the build started without delay. It’s a strategic way to access more funds, close faster, and avoid the roadblocks that come with institutional lenders.
Thinking about building and need flexibility with your financing? A private mortgage might be your best first step. Let’s talk about how it could work for your project.
Source: Absolute Mortgage Team