All posts by Joe Walsh
Second Mortgage Rates
“How The Costs Of Different Sources Of Second Mortgage Facilities Are Determined”
Because of the higher risk associated with a second mortgage position, lenders will add a risk related premium into the interest rate.
As a result, second mortgage rates can be anywhere from 2% to 4% higher for a similar type of first mortgage calculated on the property.
However, the actual posted rate can vary considerably depending on the interest term you’re considering and the type of mortgage product.
As an example, lets say that a homeowner has two mortgages in place. The first mortgage is from a traditional bank lender and has a five year term and effective interest rate of 5%. The second mortgage is from a private lender, has one year interest term set at a rate of 14%. Because the first mortgage is from an institutional lender and the second from a private, there will be a greater range between the interest rates.
On an apples to apples basis where you’re comparing an institutional first mortgage to an institutional second, or a private first to a private second, the rate spread between the first and second mortgages will be in the 2% to 4% range most of the time.
Its also not uncommon to see a home owner with an institutional first mortgage and a private second. Institutional seconds can be harder to secure due to the higher perceived risk which causes borrowers to locate and secure private seconds which are once again at still higher rates than an institutional second mortgage.
The one exception where registered 2nd mortgages can actually be less than a comparable first mortgage is on home lines of credit.
Typically, a home line of credit is registered as a second mortgage with a floating interest rate pegged at between prime and prime plus 2 percent. In many cases, depending on the level of the prime lending rate at any given point of time, the line of credit rate can be lower than the interest rate of the first mortgage. Situations where this can occur typically have the first mortgage with a long term interest rate higher than the prime or floating rate due to the fact that the interest rate is fixed for a period of time.
If you require information regarding second mortgage rates, I would suggest that you give me a call and I will make sure you get all your questions answered.
Self Storage Property Financing
“Self Storage Property Financing Options”
Self storage facilities are a growing market as the population increases and retains more stuff in the process.
Because of the cash flow potential and resale market for these types of properties, there are several different types of commercial property financing sources available to property owners.
Perhaps the hardest type of self storage financing is the actual construction and development of a self storage facility. A new facility typically sees the borrower entering into a new market. Lenders may become very concerned about proper location and marketing strategy which can create some difficulty for the prospective borrower to find and secure construction funding.
For existing self storage properties with good capacity utilization and cash flow, the commercial mortgage market is very strong. Excellent rates can be obtained for well established and highly utilized properties.
Financing challenges can occur for self storage properties where there is a residence incorporated into the design and layout as the resale market will likely be significantly lower for this type of setup. Anything that complicates liquidation of the underlying security tends to directly impact a potential lender’s interest in the financing opportunity.
For self storage facilities that do not qualify with institutional lenders, there is an active private lender market for this type of property. Especially in larger centers, private lenders many times will look at these properties as good potential investments and in the event that the borrower is unable to repay the private loan, the private lender may decide to self purchase the property for its long term cash flow potential versus selling the property in the open market to recoup what’s still owing on the mortgage.
Like most commercial properties, the financing options are reduced for rural areas. Basically remote locations will see fewer lenders interested in providing a commercial property mortgage.
The key to more mortgage options and better rates is solid cash flow and high facility utilization. Locations that have room for expansion on site and are situated in markets that will allow for growth will also be garner a lot of interest from traditional lenders that typically provide the lower interest rates.
If you’re looking for self storage financing, I would suggest that you give me a call so I can quickly assess your options and work with you to determine the best course of action for finding and securing a commercial mortgage for the property in question.
Click Here To Speak With Joe Walsh, Commercial Mortgage Broker
Warehouse Mortgage Financing
“The Ins and Outs of Warehouse Mortgage Financing Programs”
Warehouse financing is another type of commercial mortgage application.
The process for financing a warehouse has changed recently with more lender requirements in existence today than just a few years ago. The lending rules have changed so much that an existing warehouse property that has carried a commercial mortgage for many years, may no longer be able to secure a comparable new mortgage under any conditions.
This is largely due to feature requirements and environmental requirements of commercial mortgage lenders.
As an example, to get the lowest potential interest rates for a new warehouse project, the building may need to have 18 foot doors, dock height receiving bays, and 25 foot ceilings. These feature based requirements are driven by what is required by the resale market. Without these features in place, the security value of the property is not only lower, but the time for resale is likely going to be higher. With these market dynamics in mind, many commercial real estate lenders have adopted these types of requirements to strengthen their security positions.
This is not to say that a commercial mortgage would not be available if a warehouse was constructed without certain features, but it could eliminate lower rate lenders from the picture and cause the property owner to seek higher risk, higher rate financing alternatives.
For existing warehouses that don’t include certain features, a mortgage refinancing of any sort may be out of the question with many commercial lenders unless the owner invests in upgrades that will bring the building into compliance with the lenders requirements.
Another mortgage requirement that has expanded in recent years is successful completion of an environmental audit. Once again, existing structures with a mortgage in place may not be able to qualify for a similar mortgage today due to the changes in environmental standards.
This can become a financing barrier for the purchase and sale of existing facilities where the property is unable to pass an audit conducted by qualified third party environmental consultant. The resulting remediation work that can be required to pass the audit may be substantial and time consuming, leaving the owner unable to sell the property before completion.
Environmental audits will focus on the use of the property over time by its tenants. Activities that can create environmental issues will create greater scrutiny in the audit process.
The result of these and other lender requirements has made the process for getting a commercial mortgage for a warehouse property considerably more challenging. Like most commercial financing applications, the services of a commercial mortgage broker can prove to be invaluable in locating and securing the property financing required.
If you’re seeking warehouse financing, I would recommend that you give me a call so that we can work through your requirements together and determine the best approach for securing a commercial property mortgage.
Click Here To Speak Directly With Commercial Mortgage Broker Joe Walsh
When To Get A Second Mortgage
“Is A Second Mortgage The Right Decision?”
When home owners are faced with the need to secure additional funds, they will try to secure a second mortgage against their house.
And many times they will do so without considering whether or not a 2nd mortgage is actually the best course of action for their specific situation.
This is where the services of a mortgage broker can be truly invaluable and should be drawn upon in these types of situations.
Here are some things to consider before signing up for an additional mortgage.
First, a second mortgage can come in the form of a set amount of funds advanced for a defined purposes and paid back over a series of years (similar to a traditional mortgage) or it can come in the form of a line of credit registered in second position against your property for an approved amount and available to you as required.
If you are looking for additional funds that you expect to pay back in less than a year, then a home line of credit is likely going to be more cost effective in the long run versus a fixed term mortgage.
Second, when additional funds are being sought, the borrower should always consider the net costs of refinancing the first mortgage versus taking out an additional second mortgage. This is more about math than anything else, and if refinancing the first is going to be cheaper overall, then its something that should be seriously considered.
In cases where repayment penalties would cause refinancing the first mortgage to be impractical, then a 2nd mortgage may be the best option available.
When going through the comparative exercise between refinancing the first mortgage and adding a second mortgage remember that the ongoing costs of the 2nd mortgage can be significantly higher. So the analysis process need to consider not only the costs incurred at mortgage closing for either option, but also the go forward costs over a similar period of time to provide an accurate comparison.
This again is where a mortgage broker can provide you with a great deal of assistance first locating the programs that best suit you situation and then working through the different scenarios and comparison with you to determine your best course of action.
If you’re considering a second mortgage, I would recommend that you give me a call so that we can go through your options together and make sure you’re getting a mortgage solution that best fits your needs and situation.
Mortgage Financing For Office Buildings
“Mortgage Financing For Office Buildings Can Be A Challenging Form of Commercial Mortgage Financing To Secure”
Office building mortgage financing is strictly considered to be commercial financing.
There is no mortgage insurance available for this type of mortgage loan like that provided by the Canada Mortgage And Housing Corporation (CMHC) for residential properties.
As a commercial mortgage opportunity, the average debt to value leverage that borrowers can expect to secure is 65%.
In smaller centers where there is less of an active resale market, the loan to value amounts can drop to as low as 50% for interested lenders. And in more well established markets, the loan to value can go as high as 75%.
Outside of the market location, the other factors that contribute to the type of leverage and rates a prospective borrower can secure include the age and condition of the building, the quality of the leases, and the overall net cash flow generated.
Office buildings that have long term leases provided by triple A type tenants will attract better and more aggressive offers from commercial property lenders. Lenders will also look at the matching of lease terms with interest terms. When existing leases are for a shorter period of time than a requested lease term, the amount of leverage provided may be reduced as the lenders will typically look at this as a higher risk scenario.
Basically, the longer the lease terms in place for credit worthy tenants, the more and better commercial mortgage options a borrower will have.
Building age and condition will also be closely assessed by the lender. In certain cases, lenders may even require repair or improvement work to be preformed before a commercial mortgage can be granted.
And while the quality of the leases is very important, the net cash flow is what will determine if higher levels of leverage are attainable for properties that are strong in all other lender assessed areas.
While triple A tenants provide a strong sense of cash flow security to a commercial mortgage provider, they can also use their strong credit status to negotiate lower rates. In the end, the lease rates will dictate the level of net cash flow that can be obtained, so borrowers looking for the lowest rates and highest leverage need to make sure they are going to meet the debt servicing requirements of their target lenders before committing to any below market lease rate in order to attract certain high profile commercial tenants.
If you have an office building that needs to refinance its existing mortgage, I recommend that you give me a call so that I can quickly provide you with a free assessment of your commercial mortgage options.
Click Here To Speak To Joe Walsh, Commercial Mortgage Broker
Condo & Townhouse Development Financing
“Key Things To Know Regarding Condo And Townhouse Development Financing”
The mortgage financing for a condo or townhouse development project can become complex largely due to all the requirements related to getting condo status and the specific requirements for financing imposed by certain lenders.
These projects basically start out as a townhouse development regardless of the long term intent for use as condo status cannot be achieved until the end of the building process.
So while commercial lending sources are going to require a certain percentage of unit pre-sales to even consider the a project for a development loan, the building is still going to be viewed as a number of rental units on one title to start with.
This directly impacts the valuation of the project for the purposes of establishing the fair market value of the underlying security. For instance, a rental unit complex may be valued at $200,000 a unit while a condo unit from the same complex may be valued at $500,000 a unit.
Even though the lender, builder, and owner may all agree that the end use will be for condos, until the condo status is obtained, the project will still be valued as a rental complex.
This has a significant impact on the leverage that can be provided for construction and development in that the owner will not be able to borrower as much against a rental market valuation versus a condo market valuation.
The second major challenge with financing these developments is the requirements of the lender, most specifically the qualification of the project’s builder.
For some institutional lenders, the related builder must be on the lenders pre-approved list. If a project comes forward seeking financing where the builder associated with the project is not on the builder list of the lender where application for financing has been made, there is a very good chance that the application will be denied unless a qualified builder is chosen.
Traditional banks only service a small percentage of this market. Some of the other sources of mortgage financing include credit unions, pension funds, private investment funds, and mezzanine funds. Mezzanine financing provides a source of equity to the borrower’s corporation which allows for increased debt financing.
If you have a condo or townhouse development that requires mortgage financing, I recommend that you give me a call so that I can go through it together and develop potential options that will meet your requirements.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
Construction Mortgage Draws Can Be Challenging To Manage
“The Unpredictable Nature Of Construction Draw Advances”
Even if you feel you’ve done everything right managing the administration of your construction mortgage draws, there is still can be problems when it actually comes time for the lender to advance funds.
Regardless of how well the work flow is mapped out and budgeted, there can still be lender draw reductions that can cause both a strain in your cash flow and your project timelines.
Let me explain.
When a building milestone gets completed and triggers a construction loan draw, the lender will make an assessment of the completed work versus the work remaining and determine if the pre-defined draw amount can be advanced, or if it will have to be reduced.
Draws get reduced if the lender determines that the projected costs to complete are higher than expected at that particular stage in the process. The lender will then reduce the draw amount so that sufficient funds will be available to complete the rest of the work.
Typically with traditional bank construction financing, the lender is depending on a third party appraiser to determine the value of the work remaining. If the appraiser comes back with a higher than expected estimate, the lender will cut back the draw request, leaving the borrower potentially scrambling to find another source of funds to cover all the draw costs and keep the project on track.
This type of unexpected surprise is also more common with traditional lenders than with private lenders and is one of the reasons that private lenders also tend to dominate the market for construction loans.
If you’re going to utilize traditional financing in order to get the best possible rates, make sure that you have a contingency plan to deal with the type of situation outlined above. While there is no guarantee this type of draw funding problem will not happen with a private mortgage lender, the odds are a significantly lower due to the fact that privates do not tend to follow as strict a funding and disbursement process as do institutional lenders.
If you’ve got a construction project that’s gotten off track and requires additional funds, give me a call so I can quickly go over you options and then together we can try to figure out the best solution.
Click Here To Speak With Construction Mortgage Specialist Joe Walsh
Why Not Get Mortgage Refinancing Advise?
“Mortgage Refinancing Advice Can Potentially Benefit You In Several Ways”
As a mortgage broker, I’m definitely biased towards the value a mortgage broker can bring to the mortgage refinancing process. Whether you give me a call or speak with one of my colleagues, I highly recommend speaking with a licensed broker when seeking mortgage refinancing advise.
In most cases, the use of a mortgage broker does not cost you anything, so getting some professional help for free is something you should take advantage of.
Here are some other things to consider.
First, the mortgage market in general has a large number of lenders with a variety of different programs. For any one mortgage refinancing scenario there can be more potential options than any one person can locate and research on their own. With the help of a mortgage broker, you can quickly zero in on the lending programs most relevant to your situation and eliminate everything else in the process. This can not only be a big time saver, but can help you locate and secure a mortgage program you may not have been able to find on your own.
Second, remember that the process of refinancing pays out and retires your original mortgage(s) and creates a new mortgage with potentially different terms and conditions. So regardless of your motivation for refinancing, getting mortgage refinancing advice from a broker can result in potential adjustments to the terms and conditions in your new mortgage that you may not have thought of on your own.
Third, its always a good idea to work through the costs of refinancing versus the expected benefit to see if refinancing will in fact provide you with the result you’re looking for. Because mortgage brokers deal with the process and related costs every day, it makes good sense to go through everything with your broker to make sure everything adds up and supports the decision to refinance.
Fourth, some refinancing actions can require greater levels of coordination and administration to get everything in place. Part of a mortgage broker’s service is to help you manage all the requirements to complete the refinancing so that everything gets done in a timely fashion without incurring unnecessary costs.
So whether you’re trying to secure a lower interest rate, consolidate debt, or seeking additional funds for a home renovation, find a mortgage broker you’re comfortable and take advantage of the free mortgage refinancing advice that’s available to you.
Click Here To Speak Directly With Mortgage Broker And Refinancing Expert Joe Walsh
Commercial Mortgage Refinancing
“There May Be Several Commercial Mortgage Refinancing Scenarios To Consider For Your Property”
Sometimes lost in all the discussion surrounding the refinancing of a residential mortgage is the opportunities that may exist for commercial mortgage refinancing.
Similar to residential property refinancing, there are three basic reasons to consider getting a new mortgage written. First, you want to see if you can reduce your overall cost of borrowing by locking in lower rates. Second, you have a need in your business for incremental capital and want to use commercial loan refinancing as a way to leverage your equity. And the third scenario is a combination of the first two where you’re seeking both incremental capital and lower overall rates.
While the motivations may be the same, the process of achieving these results is typically going to be more complicated and costly. Remember that commercial appraisals can cost significantly more than residential appraisals. Add on the need for things like updated environmental reports and updated surveys and the administrative costs for refinancing will be higher.
Another thing to consider is the difference in rate movements that can exist between the residential and commercial markets. First of all, commercial rates are higher based on the higher level of perceived risk for financing a commercial property versus a residential property. This can result in higher prepayment penalties on the same mortgage value.
Even though 2009 and 2010 has seen record lows in interest rate levels, commercial rates have not reflected this as much as residential rates, providing a less of an opportunity for rate savings in many cases.
Regardless of the higher level of complexity or the added costs that you may incur, like any refinancing exercise, commercial mortgage refinancing is about crunching the numbers to see if a refinancing strategy provides a net benefit to the borrower.
This process is likely going to be more complicated to complete which is why you should utilize the services of a commercial mortgage broker to work through the numbers for any scenario you may be considering. Its not hard to incur unnecessary costs in this process, especially if its something you’ve never attempted before.
As a first step, I recommend that you give me a call so that I can quickly assess your situation and then go over the available options with you to determine the best course of action or non action.
With commercial mortgage refinancing, many times the numbers don’t work out which is why its so important to go through the assessment exercise and avoid any unnecessary costs.
Click Here To Speak Directly With Commercial Mortgage Broker Joe Walsh
Mixed Use Commercial Mortgage
“Here Are The Basics For Mixed Use Commercial Mortgage Financing”
Mixed use commercial mortgage financing applies to any property is zoned and utilized for both a residential and commercial purpose.
The most common example of a mixed use property is building with a retail store and apartment units.
While these types of buildings exist in large numbers there can still be real challenges in finding and securing a mixed use mortgage.
For starters, this type of commercial property typically does not get financed above 65% of the purchase price or appraised value of the property, whichever is less. Yes, there are definitely cases where the loan to value can go as high as 75%, but there are even more situations where the loan to value is no greater than 50%.
So the equity portion required to get financing in place can be significant and a barrier to mixed use financing.
In terms of sources of financing, the chartered banks will fund mixed use property applications, but mostly at overall mortgage levels above $250,000.
From an institutional point of view, Credit Unions tend to have the ability to consider lower dollar mortgage requests for mixed use, but even then, the loan to value can still fall into the 50% to 65% range. The benefit of credit unions is their regional focus and knowledge of the local markets they serve which provides them with a greater insight into the resale market for mixed property applications from their lending area.
Trust companies also participate in this market, but on a relatively small and selective scale due to the regulatory requirements that restrict the percentage of mixed use in their overall lending portfolios.
The challenge for institutional lenders is the lack of any mortgage insurance programs for this type of financing and large risk spectrum associated with mixed use properties.
Private lenders will also provide mixed use mortgages with terms ranging from 1 to 3 years. Private rates will be higher, but in many smaller centers where traditional lenders are not interested in smaller value buildings, the private financing sources can be the best choice available.
Even when an institutional lender is prepared to entertain an mixed use application, the requirements for financing can be extensive and the application of lending criteria rather unpredictable.
This is definitely an area where a good commercial mortgage broker can add some real value to the process of locating and securing mixed use financing.
As I first step, I would recommend that you give me a call so I can quickly assess your situation and provide you with potential options that we can go over together.
Click Here To Speak Directly With Commercial Mortgage Broker Joe Walsh
Home Mortgage Refinancing Process
“When Is It The Best Time To Refinance Your Mortgage?”
With interest rates still sitting at near record lows, consumers are always wondering if they opt for home mortgage refinancing.
Many home owners with variable rate mortgages have already locked into longer terms due to the fact that the cost of refinancing is negligible when no prepayment costs are involved.
At the same time, there are still many variable rate holders that are taking advantage of the low open mortgage rates and will likely continue to do so until rates go up. Some of these individuals may even be waiting to see if there is a further drop before even considering locking in longer term.
And what do you do when you have a fixed term mortgage that does carry a prepayment penalty when the existing mortgage is paid out prior to the end of the interest term?
The possible scenarios that you can consider are almost endless.
And remember that there is no one best approach. Choosing an interest term has everything to do with your own risk tolerance and your view of how you see the economy moving in the future.
When considering going through a home refinancing process, there are a few things to keep in mind.
First, make sure that you have all the facts related to your existing mortgage with respect to the existing interest term, prepayment penalties, and conversion options. If you have a fixed term mortgage, ask your mortgage lender to provide you with a calculation of the prepayment penalty so that you have something official to go by.
Second, review the existing market rates and related interest terms to gain a good understanding of what’s available to you with a new mortgage. Remember that rates will continually fluctuate in the market and among lenders, so any exercise you go through today will have to be updated in the future to reflect potential rate changes.
Third, and perhaps most important, go through the potential scenarios you are interested and calculate the projected benefit to see what makes the most sense with respect to your beliefs regarding rate movements in the future and the current costs associated with paying out your existing mortgage and getting a new one in place. In the end, this is a dollars and cents exercise with the goal to save money in your financing costs over time.
The best way to approach the home mortgage refinancing process is to give myself or another mortgage broker a call to answer all your questions and to go through different scenarios with you. This is definitely a case where a mortgage broker can add a great deal of value to your decision making process and help you come up with a plan of action you’re coming to be satisfied with for years to come.
Click Here To Speak With Mortgage Broker, and Refinancing Expert, Joe Walsh
Apartment Building Mortgage Financing
“Apartment Building Mortgage Financing Can Have a Number of Different Applications”
Commercial mortgage financing for apartment buildings, multi family units, and multi residential buildings is pretty much the same thing, just different building and property descriptions.
Apartment buildings with five or more units fall under commercial financing versus residential financing programs.
The biggest challenge for mortgage financing of existing apartment buildings is getting the most leverage for the least amount of cost.
The lowest borrowing rates for multi unit buildings are not available unless the loan to value ratio is no higher than 65%. This ratio will even be lower in less active local and regional markets where the resale market for this type of property may not be as strong.
Higher leverage can be achieved through an insurance backed mortgage like those provided by the Canada Mortgage and Housing Corporation (CMHC), but the cost to insure will also increase the effective cost of borrowing. At higher loan to value ratios, the effective cost of financing can be almost double what you would expect to see from a uninsured mortgage of similar size.
At the same time, many commercial mortgage lenders will not approve apartment building mortgages unless they are insured, reducing the number of available lenders for situations where insurance is not required.
From a debt service point of view, commercial lenders require a net cash flow of at least 1.2 times the annual debt service for the mortgage. Outside of leverage and security, cash flow is the next most important factor to the lending decision.
Historical Income statements are closely scrutinized to make sure adequate operating costs are built into the numbers before debt service is calculated. In some cases, the income statements are adjusted to reflect cost allowances deemed to be absent which can result in the apartment building failing to cover the debt service requirements.
The commercial mortgage lender and/or the insurer can also request that capital upgrades occur before the mortgage can be disbursed. This added cost will typically need to be financed from another source of capital.
Despite the large number of apartment complexes in existence today, commercial financing can be both hard to locate and secure, depending on a number of factors related to the property including but not limited to location, condition, age, and cash flow.
To greatly improve your chances of locating and securing an apartment building mortgage in a timely fashion, I would suggest that you give me a call so we can quickly go through your options and then see if we can outline a plan to get mortgage funding in place.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
Commercial Mortgage Brokers
“Residential Versus Commercial Mortgage Brokers’
From a licensing point of view, there is no difference between commercial mortgage brokers and residential mortgage brokers.
The real difference come from the business focus of the individual broker. And while I openly promote everyone to take advantage of the services mortgage brokers offer in general, commercial mortgage financing is much more complex than residential and for the best possible service, you should seek out brokers with significant commercial property financing experience.
Even among commercial mortgage brokers, there can be greater degrees of specialization depending on the type of project or property you’re trying to finance.
While the residential category effectively covers off all single unit residential homes and multi unit complexes less than 5 units, the commercial category covers off everything else.
A short list of commercial property types include Multi Family Units,
Apartment Buildings, Strip Malls, Mixed Use, Condo Development, Construction, Warehouse, Townhouse Development, Subdivision Development, Self Storage, Income Property, Office Building, Land Acquisition, and Land Servicing to name the main categories.
Each category can have its on specific lenders and its own unique financing requirements. So even though a broker may be a commercial mortgage broker by their own description, they may also not have any experience with one or more of these categories.
In selecting a commercial broker to work with keep in mind that the more relevant their experience is to the property type you’re working with, the more value they’re likely going to provide.
The commercial financing process can be quite grueling in comparison to what you may expect from a residential application submission.
Commercial lenders will perform much greater due diligence on the property and the owners that you would expect when financing a home.
Not only can the process be more difficult to navigate, but finding relevant lenders that fit your situation at a given point of time can also be challenging.
Which is exactly why you should consider working with a commercial mortgage broker, and preferably one that has relevant experience working with your type of property requirements.
If you’re not sure about the qualifications of certain individuals, ask for references from past clients, and give these individuals a call to see what they have to say about the level of service they received and their over all level of satisfaction.
Personally, I would recommend that you give me a call so that I can provide you with a free assessment of your options. If I can’t help you, I’ll do my best to refer you to one or more commercial mortgage brokers that are more specialized in your area of need.
New Home Construction Loans
“New Homes Are The Most Common Form Of Building Requiring Construction Financing”
Here in Ontario, we have may different construction loan programs to choose from, ranging for the more traditional institutional or bank financing programs to construction mortgages provided by private mortgage lenders.
The builder market right now favors private mortgage construction financing over institutional construction loans due primarily to a faster approval process and less terms and conditions.
Private loans do come at a higher cost of borrowing, but the added cost is offset by the benefit of a more streamlined and predictable process that is typically less administratively intensive.
New home construction financing can be secured by the builder or the actual home buyer.
For the builder, financing can be arranged on speculation of future sale whereby the house has not been sold at the time of construction, or it can arranged on a pre-sale basis where the contract for sale between the buyer and builder is in place before construction commences.
Currently private money loans make up over 80% of the overall market for construction financing. Within the private market segment, there are different lending options that are provided by each private lending individual or group. For instance, certain lenders will require that the first 20% of construction costs be paid into the project by the borrower before the lender will start advancing funds. Other lenders will allow the borrower to invest their capital towards the end of project.
There are many other unique aspects to different offers that should be considered when comparing options. Because of the large number of private lenders in Ontario, there can be considerable diversity in terms of what you can expect from one lender to the next for any given project.
Whether or not you’re a builder or home owner, or if you prefer an institutional lending solution to a private one, the best first step is to contact a mortgage broker that specialize in construction financing.
Lender selection is an important aspect of the project and you want to make sure that you’re got a financing partner that will work well with your particular situation. I recommend that you give me a call so that I can quickly assess your options and work with you to select from the best available construction loans relevant to your situation.
Click Here To Contact Construction Financing Specialist Joe Walsh
Mortgage Closing Costs
“Here Are Some Of The More Typical Mortgage Closing Costs You May Be Faced With”
Depending on the type of mortgage transaction, there can be some differences in mortgage closing costs. In an attempt to cover all the basis, here is a laundry list of costs that could show up the list of disbursements provided to you by your lawyer at time of closing.
Its a good idea to understand what costs relate to your specific situation and to make sure that funds are available to cover everything off and complete the deal. A qualified mortgage broker can be an excellent source of information if you have any questions.
In terms of total costs, there can be quite a range from deal to deal, but a general rule would be to allow closing costs of between 1.5% to 3.0% of the property value with the majority of cases coming in around 2.0%.
Home Inspection. While this is a voluntary cost strictly borne by the buyer, its something to seriously consider as it can provide real insight into a property purchase and
can be especially valuable to those looking to purchase older homes. These inspection services can range from $200 to $500.
Property Appraisal. The mortgage lender will require a property appraisal to be issued in their name for the property you wish to finance. Each lender will have their own list of approved appraisers so its a good idea hold off getting an appraisal completed until after you have applied for financing to avoid having the appraisal done more than once. In town
residential appraisals are around $200. Rural appraisal fees tend to be higher.
Mortgage Application. For mortgages that require mortgage insurance, the insurance providers will charge an application fee of under $200.
Title Insurance / Land Survey. Most mortgage lenders will require an updated survey of the subject property to be provided. If a survey is not readily available, many mortgage lenders will also accept title insurance instead. While a new survey can cost $500+, the title insurance premium will be closer to $200.
PST on Insurance Premium. PST is charged against the insurance premium related to an insured mortgage (a mortgage that has a down payment that is less than 20% of the property value) and is payable on closing.
Fire Insurance. A certificate of fire insurance must be in place in the borrower’s name with the mortgage company named as the beneficiary prior to the borrower taking possession of the property. Insurance costs will depend on the size of the home and the coverage selected by the borrower.
Land Transfer Tax. This is different from province to province, but in most cases, the buyer of a property is required to pay a land transfer tax which is calculated off of the purchase price. Some provinces provide rebates of the this tax.
Home Warranty. New home warranty programs are available in certain provinces to protect the buyer from any deficiencies caused by the builder.
Legal Costs. The borrower’s lawyer will charge for their legal costs and any disbursements made on behalf of the borrower to complete the transaction. Fees will vary by lawyer and amount of work required.
GST. GST is payable on new homes and there are also GST rebates that you can apply for.
While the buyer is required to pay the GST, find out if its been built into your builder contract or if you will have to pay it yourself as an added cost to your contract. This can be an important cash flow consideration at the time of closing.
For a mortgage refinancing, there may be other costs to consider including prepayment penalties for retiring the existing mortgage or mortgages registered on the property before completion of their stated interest terms.
If you need any help understanding the costs related to a potential transaction, please give me a call and we will work through everything together.