Financing the construction of a rental building

How does construction financing work?

A construction loan is not paid out in one go. The lender advances money in installments, as the work is completed and checked.

During the build, the building earns nothing. The lender therefore judges the project on its budget, its schedule and the income the building will produce.

CMHC insures construction loans for rental buildings. According to its page, advances can reach 85% of lending value.

Each installment follows a check. A lender’s appraiser or inspector confirms progress before the next payment.

This requires cash flow. You sometimes pay suppliers before receiving the installment, and your equity is generally injected first.

The financing is usually set up before the first shovel goes in. Late changes to the design or the budget can force the lender to review the whole application.

What does the lender look at?

The lender assesses the project before the first payment.

• The plans, the construction budget and the schedule
• The total cost, the final value and the expected net operating income
• The experience of the construction and management team
• The equity or the land you contribute

For a new project, CMHC asks the borrower to guarantee 100% of the loan until 12 consecutive months of regular rents. That rule affects your personal liability, or your company’s.

The delivery date matters a great deal. A delay lengthens construction interest and postpones the first rents.

The lender will also want to know the general contractor, its references and the guarantees it provides. A fixed-price contract reassures more than an open one.

A building permit in hand, or a realistic date to obtain it, is part of the application.

Ask also how the lender handles cost overruns. Some require you to cover the gap yourself before further advances are released.

What conditions does MLI Select add?

MLI Select also applies to new construction, with a minimum of 50 points. At that tier, the loan can reach 95% of cost, with 40-year amortization.

At the 70 and 100 point tiers, amortization rises to 45 and 50 years. For standard rental housing, CMHC states up to 50 years for new construction.

In new construction, affordability counts from 10%, 15% or 25% of the units to reach 50, 70 or 100 points. That commitment lasts at least 10 years.

When the work ends, the construction loan is generally converted into a long-term loan. Ask the lender at the start how that step is planned.

An affordability or energy commitment is planned in the design. Fixing a building to earn points after the fact costs more.

Because these terms may change, confirm them with the lender before relying on them. The official CMHC pages remain the reference.

What is the Apartment Construction Loan Program?

CMHC offers this low-cost loan program to build rental housing. Its official page says it is open for applications.

• Minimum loan of $1,000,000
• Financing of up to 100% of the cost of the residential part of the project
• Standard rental, independent-living seniors’ and student housing
• A Frequent Builder framework, with its own volume and credit requirements

Loans must also be linked to specified programs, such as a National Housing Strategy program or mortgage loan insurance for multi-unit buildings. Applications go through CMHC’s portal.

The terms of this program change. Check the official page before building a financing plan around them.

CMHC’s page describes an incentive-based approach for energy efficiency and accessibility, without giving numeric thresholds. Those thresholds are confirmed in the program documents.

CMHC handles these applications itself. It also suggests contacting a regional specialist before filing.

What are the pitfalls?

Construction files get complicated mostly through planning.

• A budget with no margin for cost overruns
• An optimistic schedule that lengthens construction-period interest
• Affordability commitments that are poorly costed and reduce future income
• A loan too small for the rent-up phase after the work ends

Each program imposes its own requirements. They sometimes stack with the lender’s.

Another pitfall is starting work before financing is confirmed. Some programs require an application before the construction start.

A last pitfall is underestimating soft costs: permits, professional fees, builder’s risk insurance and construction interest.

Keep a reserve for the unexpected. Soil conditions, material prices and permit delays are common reasons for a budget to grow during construction.

How do you choose between these routes?

A CMHC-insured loan suits a wide range of projects with five or more units. The construction program mainly targets larger projects, because of the one-million-dollar minimum loan.

A private loan or an uninsured loan from a traditional lender remains possible. Its terms depend entirely on the lender.

The choice depends on the size of the project, the intended tenants and your commitments. Each route ties rents, loan length and your liability in a different way.

Compare them on total cost and on flexibility, not on the rate alone. Ask for the terms in writing.

Whichever route you pick, keep the same set of documents ready. The plans, the budget and the schedule serve every lender and every program.

What should you do next?

First cost the total project and the expected net operating income. That is the basis of any application, whatever the product.

Then gather the plans, permits, budget and schedule. Talk to a lender or broker before you sign the construction contracts.

On PMECAP, the Construction financing family describes the options. The request form goes to a brokerage firm registered with the AMF.

FAQ

Sources

• SCHL : Programme de financement de la construction d’appartements (ACLP) (accessed October 13, 2026)
• SCHL : Assurance prêt hypothécaire, logements locatifs ordinaires (accessed October 13, 2026)
• SCHL : APH Select (accessed October 13, 2026)