How to Finance a Rental Build in Canada: CMHC, Conventional, and Alternative Paths Compared
If you're planning to build a rental property in Nova Scotia, the biggest question is how to finance it. Whether you're looking at a sixplex in Halifax or a larger project, the numbers matter. For example, with CMHC MLI Select, you might only need a 5% down payment - just $48,000 on a $960,000 build. Compare that to $240,000–$336,000 with a conventional loan. That $200,000+ difference could fund your next project or cover construction overruns. This article breaks down three financing paths - CMHC-insured loans, conventional bank loans, and alternative options - so you can decide which one fits your project, timeline, and cash flow goals.
MLI Select Explained | How to Finance Multi-Family Real Estate in Canada (2025 Guide)
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1. CMHC MLI Select Financing
The CMHC MLI Select program is designed for multi-unit rental properties with five or more units, offering some of the most attractive financing terms in Canada. It uses a scoring system that prioritizes affordability, energy efficiency, and accessibility. Higher scores lead to better terms, such as reduced insurance premiums and limited recourse financing [1].
Loan-to-Cost Ratio
One standout feature of MLI Select is its 95% loan-to-cost (LTC) for new construction projects. This means property owners only need a 5% down payment [1]. For instance, a sixplex in Nova Scotia costing $960,000 would require just $48,000 upfront, compared to $240,000–$336,000 with traditional lenders [1]. This lower cash requirement can free up funds for other projects or operating reserves. In contrast, standard CMHC multi-unit insurance (non-MLI Select) caps leverage at 85% loan-to-value (LTV) [2][4].
Amortization Period
The program offers amortization periods of up to 50 years for new builds, far exceeding the 20–25 years typically offered by conventional commercial mortgages. This extended timeline significantly reduces monthly debt servicing costs [1][2].
Interest Rates and Costs
CMHC-insured loans under MLI Select come with interest rates ranging from 3.25% to 4.25%, which are generally lower than the 4.50% to 7.95% range seen with conventional financing [1]. Insurance premiums depend on the project's MLI Select score: those scoring 100+ points pay 0.50%–1.50%, while lower scores result in higher premiums, as shown below:
| MLI Select Points | Insurance Premium |
|---|---|
| 100+ points | 0.50% – 1.50% |
| 70–99 points | 1.75% – 2.50% |
| 50–69 points | 2.75% – 3.50% |
| 0–49 points | 4.00% – 4.50% |
Improving your MLI Select score can lead to substantial savings on insurance premiums.
Eligibility Requirements
Applicants need at least five years of experience managing multi-unit properties [2][4]. Financially, they must show a net worth equal to 25% of the loan amount and guarantee 100% of the loan until the property achieves 12 months of stable rents [2]. Additionally, at least 70% of the project’s floor area and loan value must be residential [2]. The minimum Debt Service Coverage Ratio (DSCR) is set at 1.10x, lower than the 1.20x–1.30x required by conventional lenders [1].
The application process typically takes 8–16 weeks, reflecting the thorough review required for these projects [1]. Meeting these criteria is essential when comparing CMHC MLI Select with other financing options.
2. Conventional Bank Financing
Conventional bank financing offers quicker closings and more flexibility, especially for properties that don’t yet meet the strict criteria set by CMHC. However, this comes with trade-offs, particularly in terms of cost and loan conditions.
Loan-to-Value Ratio (LTV)
Conventional lenders typically provide 65% to 75% LTV for multi-unit rental projects, meaning you’ll need a down payment of 25% to 35% [1]. For instance, a $960,000 property requires only about 5% down under CMHC MLI Select, but with conventional loans, you’re looking at $240,000 to $336,000 upfront. This higher equity requirement reflects the lender’s increased risk since there’s no government insurance to mitigate defaults.
Amortization Period
Unlike CMHC-insured loans, which offer amortizations of 40 to 50 years [1], conventional commercial mortgages are capped at 20 to 25 years [1]. This shorter timeline means higher monthly payments, which can strain cash flow early on. Limited cash flow might make it harder to cover vacancies or invest in necessary upgrades.
Interest Rates and Costs
Interest rates for conventional loans range from 4.50% to 7.95%, higher than the 3.25% to 4.25% typically seen with CMHC-insured loans [1]. However, conventional loans don’t come with the upfront CMHC insurance premium, which can range from 0.50% to 4.50% of the loan amount [1]. On the downside, conventional lenders require a higher Debt Service Coverage Ratio (DSCR) - usually between 1.20x and 1.30x, compared to CMHC’s minimum of 1.10x [1].
Eligibility Requirements
Conventional financing focuses more on the borrower’s overall financial strength and existing banking relationships rather than rigid property standards [1]. This makes it appealing for value-add investors aiming to renovate distressed properties. Conventional loans also close faster, typically within 4 to 10 weeks, compared to the 8 to 16 weeks needed for CMHC-insured loans [1]. Many investors use conventional financing as a short-term option to acquire and improve properties before transitioning to long-term CMHC-backed loans [1].
3. Alternative Financing Options
When CMHC or conventional loans don't fit your project's timeline or property conditions, alternative financing can step in. These options prioritize speed and adaptability, often closing deals within 4 to 10 weeks. While they come at a higher cost, they can be critical for competitive acquisitions or properties needing substantial repairs to meet CMHC standards [1]. Common routes include private lenders, credit unions, and bridge financing.
Loan-to-Value Ratio (LTV)
Alternative lenders typically provide financing at 65% to 75% LTV, which translates to down payments of 25% to 35% [1]. This is slightly more demanding upfront compared to some conventional loans.
Interest Rates and Costs
Interest rates for alternative loans generally fall between 4.50% and 7.95% [1]. These loans don't carry insurance premiums, but the higher rates reflect the increased risk for lenders. Many property owners use these loans as a short-term bridge - usually 12 to 24 months - to buy and stabilize a property. Once the property reaches 85% occupancy or higher, refinancing into a lower-rate CMHC mortgage becomes an option [1].
Eligibility Requirements
Alternative lenders often place less emphasis on strict property standards and more on factors like net worth and banking relationships. This can be advantageous for distressed or mixed-use properties that don't meet CMHC's income thresholds [1]. However, these loans usually require full recourse, meaning you're personally liable if the project doesn't pan out. By contrast, CMHC's MLI Select program may offer limited recourse for strong projects. The application process is moderately complex but involves less documentation and more flexible fee structures compared to government-insured loans [1].
Next, we'll weigh the trade-offs of these financing methods to help pinpoint the best approach for your project.
Advantages and Disadvantages
CMHC vs Conventional vs Alternative Rental Property Financing Comparison
Here’s a closer look at the pros and cons of each financing method, based on the earlier breakdown.
CMHC MLI Select offers the lowest borrowing costs, with interest rates ranging between 3.25% and 4.25%, and allows for high leverage - up to 95% of construction costs - with just a 5% down payment [1]. However, it comes with stringent requirements, including at least five years of multi-unit management experience and a net worth equal to 25% of the loan amount [1][2]. For a $5 million property, the lower interest rates and extended amortization periods (up to 50 years) can save you around $72,000 annually in debt servicing compared to conventional loans [1]. The downside? The closing process is slower, taking 8 to 16 weeks [1].
While CMHC MLI Select shines in terms of long-term affordability, conventional financing offers faster closings - typically 4 to 10 weeks - and is more flexible for properties in less-than-ideal condition. This makes it a strong option for competitive acquisitions or value-add projects. That said, it requires a higher down payment (25%–35%), comes with higher interest rates (4.50%–7.95%), and involves full recourse [1].
For situations where neither CMHC nor conventional financing fits, alternative lenders step in. These loans can close in as little as 2 to 4 weeks [1]. However, the trade-off is steep: interest rates often exceed 8%, making them more expensive. Still, they can be a practical choice for distressed properties or tight timelines.
For property owners focused on new builds, CMHC MLI Select typically delivers the best long-term financial benefits. On the other hand, if you’re acquiring existing properties or pursuing value-add opportunities, a two-step approach - starting with conventional or alternative financing and later refinancing with CMHC - might work better.
| Factor | CMHC MLI Select | Conventional Bank | Alternative/Bridge |
|---|---|---|---|
| Interest Rate | 3.25% – 4.25% | 4.50% – 7.95% | 8% – 12%+ |
| Max Leverage | Up to 95% LTC | 65% – 75% LTV | 65% – 75% LTV |
| Amortization | Up to 50 years | 20 – 25 years | Interest-only common |
| Insurance Premium | 0.50% – 4.50% | None | None |
| Timeline to Close | 8 – 16 weeks | 4 – 10 weeks | 2 – 4 weeks |
| Min. DSCR | 1.10× | 1.20× – 1.30× | Varies by lender |
| Recourse | Limited (100+ pts) | Full recourse | Full recourse |
This table simplifies the key points for comparison. One unique feature of CMHC MLI Select is its point system, which rewards projects that focus on affordability, energy efficiency, and accessibility. Achieving 100+ points can reduce insurance premiums to as low as 0.50% and provide limited recourse terms [1]. For new construction in Nova Scotia, designing to meet CMHC standards - such as using Helio’s pre-qualified MLI Select designs - can help you avoid expensive retrofits and secure some of the best financing terms available in Canada. Each option serves different project needs, and understanding these trade-offs is key to choosing the right strategy.
Conclusion
Select financing options that align with your project's scope and timeline. For new rental construction in Nova Scotia, CMHC MLI Select offers unmatched long-term benefits. It provides up to 95% loan-to-cost financing, interest rates ranging from 3.25% to 4.25%, and 50-year amortization periods - features that significantly improve annual cash flow compared to conventional financing options [1]. In Halifax, where market rents often fall short of covering development costs, this type of high-leverage financing becomes especially critical [5]. While CMHC financing typically takes 8–16 weeks to close, this timeline is a worthwhile trade-off for new builds [1].
Conventional financing, on the other hand, closes faster - within 4 to 10 weeks - making it a good fit for competitive land acquisitions or as a temporary bridge before refinancing with CMHC after construction [1]. When neither CMHC nor conventional options fit, alternative lenders can step in, closing deals in as little as 2 to 4 weeks, albeit at higher costs [1].
For new rental builds with four or more units, especially when you already own the land, CMHC MLI Select should be your top choice. Using pre-approved designs - like those available through Helio's integrated design-build process - ensures compliance with CMHC's energy efficiency and affordability requirements from the start. This approach avoids costly retrofits and opens the door to insurance premiums as low as 0.50% and limited recourse protection [1]. Looking ahead to February 2026, when mortgage renewals and rising arrears could strain borrowers across Canada, MLI Select’s lower debt service coverage ratio of 1.10× offers a critical financial cushion [1][3].
FAQs
Can I use CMHC MLI Select if I’m a first-time multi-unit landlord?
The CMHC’s MLI Select program is open to first-time multi-unit landlords. It’s designed to support projects that focus on affordability, accessibility, and energy efficiency. This includes both new builds and upgrades to existing rental properties. The program has flexible eligibility criteria, making it accessible to a variety of applicants.
What MLI Select score do I need to qualify for limited recourse?
To access limited recourse benefits through CMHC's MLI Select program, you must achieve a minimum score of 50 points. This score acts as the baseline for eligibility under the program.
When should I use bridge financing before refinancing with CMHC?
When you’re caught between buying a new property and waiting for the sale of your current one, bridge financing can be a practical option. It provides short-term funds to cover gaps, especially if you’ve already secured a firm sale agreement but need cash right away for a down payment or closing costs. After your property sale goes through, you might want to explore refinancing through CMHC-insured financing for longer-term stability, provided it aligns with their specific lending requirements.