Archive Monthly Archives: February 2010

Gas Station Financing

“Gas Station Financing Tends To Be A Very Specialized Form Of Commercial Lending”

Due to the increased focus on environmental issues and the related environmental laws focused around environmental liability issues, there are less commercial lenders interested in financing gas stations now than there were several years ago.

Any financing request, regardless of the lending source, will require recently completed Phase I and Phase II environmental audit reports from a recognized auditing group.  If there is a material amount of contamination detected, further levels of testing may also be required as well as the completion of remediation work identified.

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Interested lenders are also going to require a commercial appraisal of the gas station which is also a fairly specialized activity that will need to be completed by an accredited commercial appraiser that is acceptable to the lender.

For the most part, gas stations are financed by private sources that have a strong focus in this market in order to properly understand the market risks as well as all the operational issues that need to be taken into consideration when reviewing a request for commercial financing.

Because most of the funds available come from private sources, the mortgage rates of interest are going to be higher as well as the lender fees on closing.  So in order for a business to cash flow a higher rate mortgage, it may require a higher owner invest than what you’d typically find in other commercial properties where the mortgage loan to value averages out at 65%.

At the same time,  a borrower may still be able to acquire institutional financing if there are loan guarantees or lease guarantees provided by one of the major gas and fuel companies that meet the requirements of a traditional bank’s commercial financing program.

Private mortgages  can also be interest only or amortized payments, depending on what the lender is prepared to offer and what the borrower is prepared to accept.  For interest only scenarios, a long term financing strategy will need to be developed to refinance the mortgage at some point or pay it out from other sources in order to pay off the principal.

If you’re seeking gas station financing in Ontario, please give me a call and I will quickly review your situation and provide any options that would be available to you.

Click Here To Speak With Commercial Mortgage Broker Joe Walsh

Land Acquisition Financing

For those of you seeking land acquisition financing where money is required for the purchase of developed or undeveloped lots of land, here are a few basic parameters to keep in mind.
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First, there do tend to be several sources for property financing in most areas. The more developed the property and the property location in general, the more land mortgage options will be available.

Land can be purchased for a planned construction project by a home builder or home owner, or for speculative reasons for individuals focused on buying and flipping real estate properties for a profit.

In either case, for residential serviced lots within well developed areas, the loan to value from an institutional lender will likely range from 65% to 75%.  If the property has a planned construction project where the construction financing is already arranged, the related financing cost for a bare land purchase can be as low as prime plus one or two from an institutional lender.

If you take the same type of scenario mentioned above, and moved it into a rural area where only well and septic is available, the financing percentage will drop to 50% in most cases.

The private mortgage market also provides funding for bare land purchases with similar leverage requirements. For well developed sites and locations, private mortgage lending rates will start at 10% and go up to around 14% for unserviced land.

Some private lending sources for bare land will require that you have a plan to build in the near term and won’t finance purely speculative purchases while others will if they like the long term potential of the property.

If you’re thinking about investing in bare land for building or speculative reason and will require a land acquisition financing facility, then I suggest that you give me a call so that I can quickly determine your available options and work with you to find a mortgage that meets your needs.

Click Here To Speak With Mortgage Broker Joe Walsh

Inspection Reports for Construction Loans

If you’re looking into construction loan financing and wondering how a lender determines how much of the project is completed at any point in time, here is an example of an inspection assessment that would be similar for many construction lenders.contact-joe-button4

By applying the example that follows, a lender or third party appraiser  will inspect the project at certain points in time and utilize the inspection report to determine how much has been completed and how much of the project remains outstanding.

This is important when a construction mortgage lender is reviewing a draw request in that the lender will always make sure there are sufficient funds retained to complete the job and if the draw requested has not completed enough specific stages of the project, then its likely the construction draw will be reduced.

Here is an example of a lender inspection report.

Inspection Report Example
Stages Assessed % Applied % Complete
Excavation 2
Foundation 12
Sub-Floor 1
Framing – Begin 10
Framing – End 10
Roof 3
Doors / Windows 8
Soffits / Facia / Eaves 1
RI Electrical 2
RI Plumbing 2
RI Heating 1
Basement Floor 2
Insulation / Vapour Barrier 1
Heating Equipment 2
Drywall / Primer 7
Interior Doors / Casing 3
Cabinetry / Counters 6
Paint / Stain 7
Flooring 6
Finish Electrical 1
Finish Plumbing 2
Exterior Finishing 8
Concrete Work 2
Grading / Decks / Landscaping 1
TOTAL 100 100

From a borrower and/or builder point of view,  the inspection report allows you to make sure the expected work for any particular draw is going to be completed on time.

Its also important to make sure that stages are completed prior to an inspection if possible to avoid an arbitrary assessment of how much is left to be done at a particular stage which could also lead to a draw reduction.

To be clear, if a draw does get reduced for whatever reason, that means there are now less funds available from the construction loan to pay the bills incurred to date.  The short fall will have to be made up with another source of funds which hopefully can be done in a timely manner so the overall project does not get delayed in any way.

While the description of the stages and percentages applied may vary among lenders, the example provided is pretty representative of what you will expect with a home construction project.

If you’re trying to locate and secure construction financing, I recommend that you give me a call so that I can quickly assess your situation and outline relevant options that can work for your project.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Commercial Property Mortgage Strategies

“When Looking To Secure A Commercial Mortgage, The All Important First Consideration Is The Amount Of Time You Have”

Unlike most residential mortgages that can be closed in 10 business days, a commercial mortgage tends to take longer due to many of the different lender requirements that can come into play.  More specifically, commercial property loans can require updated appraisals, environmental assessments, title surveys, building inspections, business financial statement reviews, to name the most common areas of assessment.

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While these areas may also be covered off for residential home purchases, the equivalent processes with commercial properties tend to be more involved and take longer to complete.

When the buying opportunity is for a property that isn’t long for the market, the time lines for closing will be shorter, making optimal or ideal financing difficult and perhaps impossible to locate and secure before time runs out on the offer to purchase.

If the property is a great buy or is an ideal fit for your business and too good to pass up for whatever reason, you may want to reconsider your property financing strategy.

Remember that the goal is to complete the purchase and if financing is going to be required, then you have to focus on sources of commercial mortgage financing that will work with your time requirements.

And even though it may cost a bit more in fees and rate in the short term, a private mortgage may be the best approach to make sure time doesn’t run out on the deal.

While private mortgage lenders may require many of the same third party reports, they may also consider reports that are already available even though they may be several years old if the lender is comfortable they still represent the subject property.  And because you will be dealing with typically one person versus an entire organization, the speed to assess and generate a financing commitment will be much faster.

This is not to say that you should abandon seeking a long term low cost commercial property loan.  The economics related to the property may require the ability to eventually secure more optimal financing over time.  But once again, the key is to get the deal closed, so after that’s out of the way, there will be plenty of time to search for the best possible solution.

On the one hand, this private bridge loan strategy is going to cost you more money in the short run, but this may actually be offset over time if a less rushed approach to looking for best fit mortgage financing results in options that would not have likely been discovered in the rush to close the deal.

If you’re in the process of purchasing a commercial property, I suggest you give me a call so that we can identify the options you need to be focusing on to get any potential deal closed on time.

Click Here To Speak To Commercial Mortgage Broker Joe Walsh.

Private Second Mortgage: The Four Most Common Uses

There are basically four scenarios that would best suit the use of a private second mortgage on a residential or commercial property.contact-joe-button4

The first and perhaps the most common scenario is when the borrower’s credit and/or repayment ability does not allow him or her to qualify for additional financing via an institutional mortgage.   Private mortgage lenders do not have the same credit requirements as traditional lenders, allowing them to consider a broader range of credit profiles.

The second scenario is when  a borrower with good credit is seeking higher leverage than what an institutional lender is prepared to provide.  For second mortgage financing from a traditional bank,  the loan to value requirements, depending on the property, application, and lender policies, can range from 60% to 75%.

Again, depending on the property, some private lenders may go as high as 85% of the value of the property for a private second mortgage, providing greater leverage in the process.

The third scenario is where a borrower requires a bridge loan to take advantage of some opportunity or complete an existing transaction where there isn’t much time to work with.  In these cases, the additional cost of private mortgage financing is likely far less than the opportunity cost related to not being able to close a transaction on time or at all.

The fourth most common scenario is for construction financing where the primary motivation for using a private second lies in higher leverage and more predictable draw advances.  The private mortgage is typically registered behind the first mortgage that was utilized to acquire the property where construction is taking place.

One of the features of a private second mortgage is the speed in which it can typically be put into place.   If the property value can be quickly established and the credit profile of the individual is solid, financing can be put in place in a matter of days versus weeks for an institutional second mortgage.

While private second mortgages will come with higher rates than institutional mortgages, they also can be put in place a lot faster, have much simpler credit requirements, and less conditions written into the mortgage commitment.

If  you are trying to locate and secure a private second mortgage, I suggest you give me a call and I will quickly outline what options may be available to you.

Click Here To Speak With Mortgage Broker Joe Walsh

Reverse Mortages Provide More Options For Canadian Seniors

Unlike the U.S. market, Canada does not have as many mortgage options for seniors looking to tap into their equity during retirement.contact-joe-button4

One solution that is gaining more interest for those over 60 years of age are reverse mortgage programs.

Reverse mortgages have actually been around for quite awhile, but have only become marketed on a regular basis in Canada over the last few years.

The reason for their growing popularity again comes back to choice and options related to retirement financing of home equity.  According to Statistic Canada, 77% of a  senior’s net worth is tied up in their home equity and over 1.5 million seniors own their homes mortgage free.

So with the bulk of retirement assets tied up in real estate, it only makes sense that owners may want to draw against their investment during their senior years.

The alternative to mortgage would be to sell the property and downsize into a lower cost property in order to free up cash.  But some consumer based research reports also indicate that over 80% of seniors do not want to move, so selling the home to extract value is not an option for them.

In the 1990’s retirement and pension funds benefited significantly from the stock market and as a result, seniors tended to use their home equity for estate planning purposes.  However, in the last 10 years, stock market returns have been down, leaving many with inadequate sources of capital to finance retirement, especially with the average life expectancy continually going up.

Add to all of this the fact that the overall population is aging as baby boomers reach retirement age and you can see that there will continue to be a growing demand for financial vehicles like reverse mortgages that allow retirees to more easily tap into their retirement resources without having to up root their lives at the same time.

While reverse mortgage programs do have certain restrictions, they are much easier to qualify than a traditional mortgage and no payments are ever required on an approved loan for as long as the borrower lives in the home being mortgaged.

And the funds being generated can be used for any purpose from supplementing existing cash flow, to starting a hobby, home improvement, in home medical care, travel, helping family members, and so on.

If you’re considering a reverse mortgage or would like to know more about how they work and if they may be a fit for your situation, I suggest that you give me a call and I’ll make sure you get all your questions answered.

Click Here To Speak To Mortgage Broker Joe Walsh

A Debt Consolidation Loan Can Boost Your Credit Score

The debt consolidation process with respect to your credit score is a bit of the chicken and the egg. contact-joe-button4

When you have a high utilization of credit cards and lines of credit, the credit scoring system utilized by Equifax and Trans Union will reduce your credit score to reflect what they believe to a higher level of credit risk.

If you go through a debt consolidation process whereby your credit card and lines of credit balances are paid down or paid off completely, you will likely see a significant jump up in your credit score over the next 30 to 60 days after consolidation is complete.

The challenge here is that the impact of your unsecured debt on your credit score may impact the types of mortgage refinancing programs you can entertain, ergo the chicken and the egg…. if I refinance, my score will go up, but because my score is too low right now, its going to cost me more to refinance.

But a higher credit score may have other significant benefits to you as well that need to be factored in.

As an example, say you’re a small business owner that utilizes personal credit cards to fund your business. This can be a pretty common occurrence, and in many cases, the only way the business could have started up in the first place.

But over time, as the business grows, the ability to seek business credit will indirectly be impacted by personal credit.

Put another way, almost any type of small business financing takes into consideration both the business credit profile and the personal credit profile. If the personal credit card debt is pulling down the personal credit score, a business owner could be declined for a business loan that has minimum personal credit score requirements.

A personal debt consolidation that removes the balances owing on the short term unsecured debt will allow the credit score to jump up and now potentially allow the business owner to get the additional financing the business is seeking.

The point here is that a good credit score can benefit you in many ways, most of which will result in greater access to capital and lower cost of borrowing. So even if you’ve never missed a payment on anything and have excellent cash management skills for juggling a number of unsecured debt balances, make sure that the overall impact on your credit score will not hamper your ability to secure capital in the future or even to make debt consolidation less beneficial over time.

If you are considering debt consolidation, I would recommend you give me a call so I can quickly assess your options and answer any questions you may have.

Click Here To Speak With Mortgage Broker Joe Walsh.

Here’s a Proper Budgeting Approach For Construction Financing

One of the keys to not only securing construction financing in the first place, but getting your project completed on time without incurring additional financing costs and delay related costs,  is developing a proper construction budget.

contact-joe-button4A construction budget plan should contain the following four parts.

First, you need to complete a detailed list of all the costs for the entire project.  These costs should be backed up by written estimates from vendors and reviewed for completeness by someone other than the person putting everything together.

Its easy to get too close to the numbers and miss something or double count something else in the process.  Having someone else review the costing details will give you more confidence in your estimates.

Second, develop a construction time line and assign the project costs to each construction element listed.  The time line should indicate at what stage draws will be required and what amounts the draws will need to be for.

Third, maintain a construction financing variance report of the actual costs versus budget for each stage of the project.  In this way, you’re going to be able to spot overruns or cost savings and factor them into the remaining costs that are still outstanding.

If you are running over budget at some point, you’re going to need to adjust your cash flow projections and draw requirements accordingly or cut back on the project in any discretionary areas to reduce costs.  When more cash is required, you want as much lead time as possible to effectively deal with it so draws can be made on time and the construction project can stay on track.

Fourth, make sure you have a contingency allowance built into your overall project costs.  Contingencies can vary significantly by project in terms of what’s reasonable, but in most cases an allowance of 10% will protect most projects from becoming underfunded.

The contingency allowance by itself doesn’t mean much if there is no source of capital to fund it if required.  This should be established before the start of the project to avoid any disruptions in the event that overruns do occur.

A detailed budget will also give construction mortgage lenders greater confidence in your project and may even help you get higher leverage or better rates if a lender believes your project management plan of attack is sound.

If you’re seeking construction financing in Ontario, I recommend that you give me a call and I will provide a free assessment of your construction mortgage options.

Click Here To Speak Directly With Construction Mortgage Specialist Joe Walsh

Private Mortgage Lending Criteria

Private mortgage lenders will qualify and approve applications for financing slightly different from a traditional institutional lender.contact-joe-button4

First of all,  someone seeking a private mortgage for either residential or commercial purposes has likely been unsuccessful securing mortgage financing with an institutional lender.   While a private lender’s application process will be much more streamlined than a traditional mortgage lender, they still are going to want to know what the money will be used for and the circumstances that lead to the need for financing.

Few lenders, including privates, are interested in high maintenance borrowers, so the back ground story of the applicant will be brought into consideration.

Second,  the resale potential of the property as well as the property value are equally important to a private lender.  If there is good equity available to secure a private mortgage, but the resale market in the area is thin and hard to predict in terms of timing and net realizable value after sale, then a private lending source may still pass on the deal.

Third, while an individual credit score or credit profile is not always scrutinized or even looked at by privates, there are a number of private lenders who will take a look at your credit background to determine if you’re someone perhaps struggling with their cash flow, or someone who habitually doesn’t pay their bills and is constantly in arrears.

Once again, private lenders are looking for borrowers whose intention is to pay their bills on time and honor the conditions of the mortgage.  Even applications with strong property values may still have a hard time securing private financing if there are indications that the potential borrower may not have the best intentions towards managing his or her financial commitments.

That being said, there are private lenders that will still finance people with really bad credit histories provided that the property values and the resale market supports the lending decision.  These mortgages will also be granted at higher rates with higher closing fees, and any failure to make payments will be dealt with swiftly to the full legal rights of the mortgage provider.

Private lenders typically will also want to inspect the property themselves and may also conduct their own appraisal of market value.

Most private lenders work through mortgage brokers to access the market with each lender typically being very regional in terms of properties they will consider financing.  Part of the reason for a small nearby market area is the development of first hand knowledge of the market and property values.

If you are trying to locate or secure a private mortgage, I recommend that you give me a call so I quickly assess your options and go over them with you to determine the best course of action.

Click Here To Speak With Private Mortgage Broker Joe Walsh.

Reverse Mortgage Pros and Cons

As our population continues to age on a relative scale, there is more interest in reverse mortgage for retirement planning.contact-joe-button4

For those of you interested in a reverse mortgage program, here are some of the pros and cons you may want to consider.

Pros

  • A borrower that received a reverse mortgage will retain home ownership and will be allowed to continue living in their residence for as long as the mortgage is outstanding.  All the benefits of home ownership will basically be retained by the owners.
  • Because the property value is likely going to rise over time, the net cost of loan will be offset by property appreciation effectively reducing the overall cost of the loan in the process.
  • The monies received from a reverse loan program is not considered income for tax purposes as all funds are being provided through a debt instrument.   For seniors utilizing loan advances to help pay for their living, the mortgage funds will have no impact on Canada Old Age Pension, Canada Pension Plan, or Quebec Pension Plan.
  • In the event that a borrower chooses to utilize funds from a reverse mortgage for investment purposes, the resulting interest payments generated by the mortgage will be tax deductible.  However, interest costs cannot be deducted for tax purposes until the mortgage has been paid off.
  • There are no restrictions with respect to the borrower’s use of funds other than the lender will not pay directly pay property taxes on behalf of the borrowers.
  • There are no payments due or payable on the mortgage until the last borrower passes on,  sells the property, or the home becomes unoccupied.

Cons

  • Depending on the interest rate in effect over time, the interest costs can accumulate quite quickly against the remaining equity in the home.
  • The related administrative fees associated with reverse mortgages are higher than conventional mortgages, making the overall cost of financing higher.
  • If the property does not appreciate during the time of the mortgage, there could be very little equity left after sale and mortgage retirement, leaving very little in the way of inheritance to heirs of the borrower(s).

If you would like to get more information on a reverse mortgage or would like to discuss different scenarios that relate to yourself or a family member, then I would suggest that you give me a call and we can go over everything together.

Click Here To Speak With Mortgage Broker Joe Walsh

Mortgage Approaches To Debt Consolidation

Debt consolidation via mortgage financing has become a very common form of consumer debt management over the past few years.
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With the presence of lower interest rates and the development of insured and uninsured mortgage programs that will allow funds to be used for debt consolidation purposes, consumers are now utilizing their home equity to get their debt under control.

There are a few different mortgage approaches that can be taken when considering debt consolidation.  In order to determine which approach is the best for a given situation, the borrower must first determine the time line over which the consolidated debt will be repaid.

Debt for consolidation is typically for built up credit card, term loan, and line of credit balances for unsecured credit facilities.   Debt consolidation is considered because the borrower has found that repayment is either not happening fast enough or not at all, and whatever money is put towards the debt is being eaten up by interest payments.

If the intention of the borrower is to repay the “to be consolidated” debt off in say five years or less, then there are a few different mortgage approaches to consider.

First, if it makes sense to refinance the existing mortgage without incurring significant repayment penalties, then this would be a solid option to get the lowest possible interest rate available to the applicant, provided that the related mortgage had fairly generous prepayment privileges written into it to allow for faster repayment of the consolidated debt.  Its not uncommon to see mortgages today that allow you to pay down the principal by up to 25% of the outstanding balance each year.

Second, if refinancing does not make sense for whatever reason, then a second mortgage or line of credit could be taken out.  For an amortized second mortgage, the amortization period could be set up according to the projected repayment period, which in the example being used was 5 years.

If a secured line of credit was taken out, the line of credit would effectively be open and would allow principal repayment at any time.

And if a borrower’s credit could not support either of the first two options discussed, then a private second mortgage could be considered.  Keep in mind, however, that private mortgages are typically for no greater than one year and receive interest only payments during the term for the most part. That being said, there are private mortgage lenders that will allow you to make monthly principal payments and can provide interest terms of two to three years.

So if you’re considering a private mortgage for your debt consolidation strategy, make sure you’re working with a residential mortgage broker who has access to private lending sources that can provide you with the debt repayment flexibility you need.

For help with a debt consolidation scenario, I suggest you give me a call so that I can quickly assess your situation and go over the most relevant options with you.

Click Here To Speak With Mortgage Broker and Debt Consolidation Expert Joe Walsh.