While in theory that can make perfect sense, in reality there can be many complicating factors that don’t allow things to play out so clean and neat.
When posed with the question of how to finance a residential subdivision development, most people would assume that there would likely be financing required for the land purchase, the planning and site development, and for the build out of the residential homes.
Financing complexity can come in many forms depending on the specific subdivision being developed.
For instance, even though a subdivision project is classified primarily as residential, it may have a commercial component to it which could require a different form of financing.
Lenders that fund development projects will also be very focused on the achievement of different milestones at different times in the project which might not match up with the cash flow needs of the developer.
Basically, each stage of subdivision development can require a different form of financing so if key milestones can’t be met to complete a certain stage, the property owner or developer might not be able to attract the additional capital required to continue to move the project forward.
Here’s an example to better make this point.
Let’s say that a developer has acquired property and secured a first mortgage at 50% loan to value on the bare land to complete the purchase. This would be the first stage of required financing. Then the developer starts spending his own money to move the planning process along and do whatever site development work he is allowed to do at this point.
In order to get stage two financing for some of the site development costs, the project will require a new appraisal to determine what the value of the property will be once approvals are in place and the project is shovel ready.
The challenge at this stage of development is that regardless of how much money the developer ours into the property, its hard for him to be given credit for improving the land until the shovel ready milestone is reached. So if the project all of a sudden does not have the cash to get to the next milestone, it can be very difficult to secure additional capital.
One way we deal with this type of situation, which can be quite common, is to work with lenders that have considerable development experience which allows them to better assess the progress of the project prior to the full approval milestone. If the body of work done to date shows the project being on track and heading to a profitable conclusion, a private lender may be able to place a price second mortgage against the property that will provide enough incremental capital to get the developer past the next milestone required to refinance everything into a larger development loan.
This is just one of many examples of how project the manner in which project details play out can work against getting subdivision financing in place.
In order to get to the next stage of the project, there are times when alternative short term solutions need to be put into place as outlined in the example above.
Our focus is help you secure all the funding you will require for your project from land acquisition through building construction as well as the other requirements that may materialize in between.
If you are in need of residential subdivision development financing, please give me a call so we can go over your particular situation and discuss potential options for providing the necessary funds to move the project forward.
When we’re looking at requests for residential condominium development financing in Toronto and other parts of SW Ontario, one of the challenges that we many times have to try and work through is a lack of presales.
While there is certainly variability from one lender to another regarding their presales requirement, in most cases it falls into a range of 70% to 75%.
In many cases, when a developer inquires about condo development financing, they are well along with the project, own the land, and have completed a certain portion of the work, but now require additional capital and may have significantly less pre-sales than a lender is looking for.
In these situations, instead of providing a development loan, we will look to provide a bridge loan against the value of the property so that money can be obtained to carry on work and time can be bought for more pre-sales to take place and eventually get into the 70% to 75% range.
This can be a very realistic strategy in that the work completed to this point has likely added value to the property, potentially considerable value.
The bridge loan may also need to be in a second mortgage position behind an existing first mortgage which is also something that can be accomplished through some of our bridge lenders.
Provided that there is enough equity in the property to support additional borrowing, the bridge lender is going to be interested in the deal, especially if they see a clear path to the project getting their pre-sales up to a high enough level to allow for a larger condominium development loan to be approved.
When the condo development loan gets into place, the bridge loan will get paid out and the project can continue.
While there are many different challenges that can face a residential condo construction project, the challenge of not enough pre-sales is one of the most common and using a bridge loan as an interim step to getting you to a larger development mortgage is great method for getting around this issue.
If you have a residential condo project you are currently planning, or one you’re in the middle of where funding is required, I suggest that you give me a call so we can go through your situation and discuss the most relevant financing options that are available to you.
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Land development loans are available through our institutional, sub prime, and private lending sources for projects in the Toronto area, Greater Toronto Area, and Southwestern Ontario.
Depending on the project, the majority of financing we put in place for things like installing services and infrastructure related to a vertical construction build requires an equity driven financing solution as their is no review at the land development stage to service debt.
As a result, many property development loans are provided by private mortgage lenders, especially when the amount required is under $2,000,000 and only a second mortgage position is available to the lender.
Larger property development loans can also be arranged but through institutional or sub prime sources.
For Ontario based projects, we are able to secure financing before and after approvals are in place which can be crucial to keeping the project on track during a permitting and approval process that can take weeks and months longer than anticipated.
Financing can be arranged from projects that are just in the planning stage as well as projects that are well under way or even near the end where additional capital is required to complete the remaining work.
The first step in determining your land development loan options is to give me a call so we can quickly review your situation on the phone together and get right into discuss the most relevant options that are available to you.
Our assessment process does not come with any cost or obligation to you and we try to complete it as quickly as possible so that no time is being wasted determining if we can help you or not.
Give me a call at 416 464 4113 to book a time when we can discuss your financing requirements. If you get my voice mail, leave your name, number, and best time to call and I’ll get back to you as soon as I can.
Certainly there is construction year round in Ontario, but the bulk of all completed work happens in the period between snow falls.
So while many land development and building projects are in the planning stage for completion in 2013, the financing to carry the cash flow of many of the projects has not even been applied for yet.
As I have previously written, the working assumption for property owners, builders, and developers is that lining up financing will be an easy, straight forward process that can be started and completed just before the work commences.
This can even be the opinion of experienced borrowers that have difficulty in the past with the project, but still put off getting the funding in place for their next project to next to the last minute.
In my opinion, waiting to close to the time you’re going to want to start building is always asking for trouble which leads to delays and worse.
Getting construction financing or a land development loan in place and getting a good deal collectively require time to target the right sources of financing for your particular project type and geography.
By starting early, you may even find that you have time to make adjustments to the plan and budget that better meets a lender’s criteria versus force feeding the final project plan onto rigid lenders, hoping to get a financing fit.
For example, for certain types of projects relevant lenders may have approved contractors or even approved material sources that need to be used for any projects they end up financing. If the lender offer is a great fit for your needs, but you can’t meet certain requirements that could have been addressed earlier in the planning process, then a potentially optimum financing commitment will be lost when it didn’t need to be.
Lenders can also require incremental third party reports to support valuations, cost estimates, and so on. If there is not enough time to complete the requests for incremental data, you once again can lose out on otherwise acceptable and perhaps preferred financing.
And when that happens, you can’t assume that the alternative construction loan source you end up working with is going to provide as good a rates or terms.
So if you have a real estate development project or construction build of some form that will require construction financing in 2013, the two keys to getting the financing in place that you require is to 1) start early, and 2) work with an experienced mortgage broker that has placed construction loans for your type of project, in your geography.
Click Here To Speak Directly With Toronto Mortgage Broker Joe Walsh For A Free Options Assessment
When looking into construction financing for a commercial project, its going to be important to get a semi accurate assessment of how much financing you can hope to secure before getting to far into the project.
Many times the property owner can start out with assumptions or guidelines related to being able to secure a construction loan that are inaccurate which can create problems completing the work on time and in budget.
So here’s a few things to keep in mind about how a lender undertake a commercial construction financing process.
First, you are better off reviewing, in detail, your plans and preliminary budgets with relevant construction lending sources prior to spending too much money.
There can be a tendency to make assumptions as to what costs a lender will cover, and what value they will assign to the work completed prior to you speaking with them. If your assumptions turn out to be off by a wide margin, it may become difficult to arrange financing with what you have to work with at that point as it may be difficult to alter the scope of the project for various reasons.
Second, the fundamental basis for approving a construction loan is going to be based on the lender’s opinion of the property value before, during, and immediately after construction. So its going to be important to support property values through third party appraisals at all relevant intervals of the project.
The starting point is always going to be “what is the land worth today in its as is state?” So if you paid $300,000 for a piece of real estate 60 days ago, its unlikely that a lender will now consider it to be worth any more than that.
Property owners and builders can get overly hung up on getting the budget for the project financed instead of the market value of the end product.
For example, if you have a $5,000,000 construction budget for a project to be erected on a $500,000 piece of property, the starting point would be that a construction lender would consider financing 65% to 70% of the project value.
But what is the project value?
On a cost basis, one can argue that the project value is $5,500,000.
But if we get a qualified appraiser to come up with a post construction value of the property, based on the plans and budgets, the amount can be more or less than $5,500,000.
And there is a real risk of it being less if the scope of the construction work provides building improvements and functionality that are going to be unique to the future tenant(s). A market value appraisal may provide significant discounting of the value associated with a “non standard construction”, providing a lower baseline that a construction lender will finance from.
Another way of putting this is that a construction financing source will provide up to 65% to 70% of market value of the completed project, to a maximum of the budgeted amount.
Third, any shortfall between what a construction mortgage provider is prepared to advance and your total capital required, is going to have to be invested by the builder in the form of cash or through leveraging of other real estate assets, which is not uncommon and can be an effective solution to make the numbers work.
Once again, its important to have all of this understood before you spend very much money so that the project can be structured within the scope of what can realistically be provided by a construction loan source.
If you have a commercial construction financing requirement for a project you are planning or are in the middle of, I suggest that you give me a call so I can go through your requirements with you and discuss different financing solutions that may be available to you.
For instance, here in Ontario, there is a lot of site development financing available, but most of it will not venture beyond the boundaries of the Greater Toronto Area or GTA.
The same is true in other parts of the country where construction financing sources tend to focus heavily on the major metropolitan centers.
The reasons for this are fairly obvious.
Within larger markets, the ability to successfully exit a project in the event of borrower default is going to be higher in a larger market than in a smaller one, all other factors being equal.
And when you have markets like Toronto, Vancouver, Calgary, and Edmonton where the real estate activity is high and and growing, there is likely going to be more opportunities not only for the borrower to be successful with their project through resale of lots, but also for the lender in the event that the project stalls out for some reason.
This is not to say that commercial site development financing cannot be secured in solid communities that are outside of the main population centres, but the process for locating proper financing and getting it in place can certainly be a lot harder to accomplish, taking more time and money to complete in many cases.
The sources of site development financing that will look at projects in more rural or less populated areas can also be hard to locate as many of them will work through broker networks when originating and placing development financing.
The challenges will even relate to locations where the population is at or near hundred thousand so its not safe to assume that just because the project is well designed and a good fit for the local market that it will be easy or straightforward to get the commercial site development financing you are looking for.
If you’re planning out a commercial site development project either for lot development for resale, or internal use, or you’re in the middle of a site development project that still has a financing requirement, I suggest that you give me a call so we can go through your requirements together and discuss different construction development financing options that may be available to you.
While there is a considerable list of items that a lender for land servicing will focus in on, the primary areas of initial interest are the current fair market value of the land and the exit strategy that will drive repayment of the loan.
With respect to market value, its not uncommon for a particular development to be in the middle of a planning process with either a draft plan of subdivision in place or something that would resemble the same.
In these situations, the construction financing source is going to be looking to determine what the value of the land is today in the current state of planning, what the land is going to worth when final plan approval is in place, and what it will be worth upon installation of services.
For installation of services, if there are multiple phases of construction, unless all phases are going to receive land servicing at the same time, a commercial appraisal should reflect the market value of each phase individually versus providing a market value for the entire development once services are installed.
This is due to the fact that lenders will likely structure their draws to align with phases of development and want to know that at each completed phase that the property has appreciated in value sufficiently to provide the security they require to move forward with further advances.
At the other end of the equation is the exit strategy to repay the loan in the future.
All land development exit strategies are going to involve the resale of all or part of the property requiring the land servicing loan, so the strength of the exit strategy has a lot to do with who the potential buyer or buyers are, and how strongly they are contractually committed to a purchase once land servicing is completed.
Taking this one step further, in situations where there a single builder prepared to acquire lots over a period of time, the financial strength of that individual company will be extremely important to any lending/funding decision.
While not automatically the case, more arranged buyers or conditional sales to financially strong buyers, presents a stronger, lower risk exit strategy to potential lenders.
Once again, there are many other aspects of the development that a lender will focus in on, but if the market value and exit strategy cannot support the deal, the other factors will not make much difference.
If you require a land servicing loan, I suggest that you give me a call so we can go through your requirements together and discuss potential land servicing loan options available to you.
Land development refinancing typically occurs when a project has completed the initial planning stage and requires incremental capital to develop and service all or part of the development, or when the term is up on an existing mortgage and the lender is no longer interested in keeping their funds in the project.
The initial mortgage that is in place may have been a land loan to help acquire the property, or a mortgage acquired post acquisition where funds were used to help fund the planning work required to get all the necessary approvals and zoning changes required to move the project forward.
If the land development refinancing is at the stage where construction development work is going to begin or continue, then the sources of financing that will consider this type of opportunity will be looking very closely at the property owner or developers cash development plan as well as their exit strategy to repay the debt.
From a cash investment point of view, institutional lenders can vary in terms of their interest in funding both hard costs and soft costs. Its not uncommon for the lower cost forms of construction financing to only finance a percentage of the hard costs, requiring the developer or property owner to fund part of the hard costs and 100% of the soft costs as the work is completed.
The exit strategy is also going to be important and its not uncommon for all forms of land development refinancing sources to want to see a significant number of pre sales before they will be prepared to fund a particular project.
Its not uncommon for a development property to appreciate considerably in value once zoning milestones and site plan approvals have been acheived.
However, in order to leverage the incremental market value in the land, the combination of cash investment in the project to date as well as incremental cash to invest and a solid exit strategy are still going to be important aspects of getting land development refinancing.
This is why its important to start working with potential development refinancing sources early on in the process so you can make sure to structure both your cash flow and business model in a fashion that will most likely meet with lender requirements.
Otherwise, land development projects that have a lot of potential can still have a hard time attracting capital due to their inability to sufficiently cover off lender risk.
If you in the planning stages of land development project, or require land development refinancing for a project you are currently in the middle of completing development, I suggest that you give me a call so we go through your requirements together and discuss potential land development refinancing options that may be available to you.
Land development financing either for a subdivision or site development work prior to building construction can be considerably harder to locate and secure at times compared to conventional construction financing.
The main reason for this is the amount of variable that are associated with land development work as compared to building construction that is being performed under a building permit.
With land development financing, the magnitude of risk is much higher due to the unknowns associated with moving earth and working in the under ground. More things can go wrong and/or will take more funds to complete than budgeted. And unplanned items can also crop up that have to be dealt with.
Needless to say, there is a considerable amount of skill required to manage land development projects which is also why builder or developer experience tends to be the first main criteria considered by most sources of land development loans.
And experience can relate to a number of things such as 1) the number of projects the land developer has worked on of similar size and scope to the one requiring financing, 2) the degree of success they have had completing the project within the regulatory requirements and budget, 3) the amount of financial success or failure they have encountered from past projects, and 4) the level of customer service they have extended to those they have sold developed property to.
Outside of developer experience, there are many other critical elements that a construction lender will look at when considering land development financing including the amount of pre-sales that have been made, the source of the budgeting estimates, the amount of equity invested in the project, and the overall timelines and details for both completing the work and reaching the planned point of exit just to name a few.
Also, depending on how the business model for a given project is structured, it may not suit the lending/funding requirements of certain lenders so its going to be important to understand who in particular will be interested in a deal, or how the deal will have to be structured or altered to meet the sources of funding that are available to the developer.
The best way to land development financing is to work through an experienced construction mortgage broker who has access to a broad cross section of commercial mortgage lenders that will consider these types of projections.
If you are in the early planning stages of a land development project, or in the middle of an ongoing project, I suggest that you give me a call so we can go through your requirements together and discuss different land development financing options available to you.
Subdivision development financing is arguably the toughest form of construction financing that there is to arrange.
The main reason being is that there can be an enormous amount of requirements and moving parts where if even one cog in the wheel starts to stick, the whole project can become delayed or even collapse.
Compare this to construction financing where a building permit is issued by the governing body responsible for building requirements on the property and development financing becomes a whole different kettle of fish.
In many cases, subdivision development financing is not provided by banks or institutional lenders either. This is largely because the projects cannot provide cash flow debt servicing for large periods of time which is viewed to be a higher risk lending scenario and as a result, does not tend to meet the risk requirements of front line branded lenders.
To provide subdivision development financing, the lending source has to understand the business and have the ability to assess the status of a given project and be able to determine if a deal can be structured that will meet the lending/funding requirements of the organization.
Because of the amount of detail that can go into a development, a non experienced lender or non specialized lender can have a hard time wrapping their head around the deal and typically a confused mind always says no, so its going to be important to be working with someone who knows their way around subdivision development financing.
Aside from the requirement complexity, a suitable lender is going to be focused in on the capital contribution made to the project by the developer or developer group as well as the exit strategy for selling off the development and repaying the construction development mortgage.
Many times, subdivision developers will either sell off the developed lots to builders, or partly sell off lots and partly build out lots themselves.
In either case, the strength of any sale arrangement, including the financial stability of the buyer or buyers is going to be key to any lender that will consider providing subdivision development loans or mortgages.
From an owner or developer financial contribution stand point, the more funds invested in the project by the owner or owners, the stronger the likelihood of acquiring development financing as well.
There is no question that as planning milestones are met that the value of the property goes up in value and over a period of time, the completed regulatory work can add considerable market value to the real estate.
But relying heavily on sweat equity can also limit the number of potential lending suitors as there is no replacement in the risk assessment model for the investment of hard cash.
Developments that are in outlying areas are also going to be more challenging to finance as compared to those in major centers. But if the lot absorption rates are reasonable and the project timeline not extending past two or three years, then the probability of subdivision development financing being available to your project is going to be a lot higher.
If you have a subdivision development project that you are planning or are in the middle of where development financing will be required at one or more stages of the project, then I suggest that you give me a call so we can discuss your project in sufficient detail and see what subdivision development financing options are available to you.
A Toronto construction mortgage broker can be a great asset to a construction project in a number of ways.
First, and foremost is the ability to connect builders, developers, and property owners with relevant sources of construction financing. When we speak of relevant sources, we’re talking about lenders that are going to be highly interested and competitive when looking at a specific construction project financing request in a specific geography for a specific borrower profile.
There are basically three different categories of construction financing and within these categories will be different lending and funding requirements from one lender to another.
At the lower cost end of the spectrum is construction loan provided by banks and institutional lenders. The key with this type of financing is making sure you are able to properly qualify for it which is another area where a Toronto construction mortgage broker comes into play.
In what we will call the mid market for construction financing are the sub prime construction lenders or quasi institutional lenders which can include investment bankers, private mortgage funds, and so on. The cost of financing is going to be slightly higher than a bank, but the qualifying terms and draw advance requirements not as complex in most cases.
At the other end of the construction financing market is private mortgage lending, which will likely be higher cost than the other two, but come with a greater degree of speed and flexibility with respect to loan qualifying and draw administration.
Once again, each of these lender categories have their own unique fit and getting the right borrower to lender match can be key to successful cash flow management in any construction project.
So not only can an experienced Toronto Construction Mortgage Broker introduce you to suitable lenders from each of these categories, they can also help you establish which lender offering will be the best fit for your project at a given point in time.
Another major benefit of working with a Toronto Construction Mortgage Broker is having the ongoing support available to you during the project to deal with any lender funding issues that may arise.
Draw management at times can be complex and its not unusual for issues to arise that can slow down draw advances or even see draws reduced. Having a good construction mortgage broker on your project team will help increase the likelihood that these issues will be resolved quickly if they do arise, and that the impact on the project will be minimized.
If you have a construction project you’re currently planning or are in the middle of in Toronto or Southern Ontario, I suggest that you give me a call so we can quickly assess your situation and provide construction financing options for your consideration.
Click Here To Speak With Toronto Construction Mortgage Broker Joe Walsh For A Free Assessment Of Your Construction Financing Options
For condo build financing, the keys to getting funds in place are going to include but not be limited to: 1) the market feasibility of the project in terms of short term resale potential, 2) the amount of equity investment the owners of the project are investing in the deal, 3) the track record of the owners, builders, and/or developers completing similar projects on time and on budget; the budget of the project and the validation of its accuracy from third parties; and the number of condo units that have been presold prior to construction starting.
With all potential condo construction financing requests, there are potentially three different types of financing options that are going to be available to them, ranging from bank or main line institutional lender, the sub prime quasi institutional lender, and the private money lender.
The goal for any project is to match the borrowers up with a lending source that is the most relevant for the projects profile and can provide the capital required for the cost and terms that a borrower is prepared to accept.
For projects that are completed and have received condo status, we can also arrange condo inventory loans for our customers as required.
A condo inventory loan is typically required at times for a couple of different reasons.
The most common reason is that at the end of the project, there are still operating costs to get covered off on a monthly basis before sales from condo units are received, requiring an incremental source of money to aid the cash flow. With a condo inventory loan, the incremental fair market value of the project is being levered to provide the additional capital needed to make the cash flow work in the short term.
Another reason for a condo inventory loan is refinance more expensive construction financing once the risk of construction has been removed.
The last most common reason for a condo construction inventory loan is when the builder or developer requires an equity take out for a new project they are trying to get going and need an inventory or bridge loan to draw on the equity before the proceeds from condo sales are received.
Regardless of the condo building construction requirements or the condo inventory requirements, are goal to match up our clients with the most relevant sources of multi unit condominium construction financing as quickly as possible.
If you are looking for multi unit condominium construction financing for a project you are planning or are in the middle of, I suggest that you give me a call so we can quickly go over your requirements and provide different financing options for your consideration.
Of all the different commercial mortgage financing programs out there, multi unit construction financing is arguably right at the top of the heap in terms of lender construction financing interest.
The category of multi unit construction includes condominium projects for both residential and commercial use, retirement homes and long term care facilities, student housing, apartment buildings, and so on.
All of these forms of investment property provide the basis for being able to cash flow and debt service the financing required by either the buyer or the developer to pay out the construction loan at the end of the project.
The keys to strong competitive interest in a project is going to include the market suitability, the owners investment or planned investment or equity position in the build, and the exit strategy to either resell units upon completion, or rent out occupancy to generate cash flow for a long term take out mortgage.
Because of the high lender interest in multi unit construction financing requests, there are different slices of the lender market available to builders, property owners, and developers.
The best rates are likely going to be coming from the major banks and institutional lenders who occupy the lowest risk lending space in the market. But with cheaper rates also comes more stringent requirements for financing that may or may not fit your project.
If you have a project that does not qualify for major bank multi unit construction financing, there may be several other options to consider.
The next level of options could be called sub prime or quasi institutional where the rates may be slightly higher than what you could get from a primary or secondary bank, but the financing requirements may also be not quite as strict as what you will typically find with the lower cost sources of construction financing.
Especially in large geographic centers, these second tier lenders can be both Canadian and U.S. based, as there is a lot of investor interest to get funds into the Canadian market space due to the economic stability in Canada as compared to other areas of the world, including the United States.
Beyond this secondary lender group, there are also private mortgage lenders that will fund multi unit construction loans.
The majority of private mortgage lenders that will finance multi unit construction will focus on projects under $5,000,000. That being said, there are mortgage investment corporations and syndicated lending groups that will consider large multi unit construction loan requirements as well.
Because of the number of potential funding sources out there, each with their own unique program requirements, its going to be important to make sure that you’re project is well aligned with a source of multi unit construction financing that best meets your requirements.
In order to accomplish this, your best approach is to work with a commercial mortgage broker who can introduce you to multi unit construction financing sources that are highly relevant to your construction financing needs. An experienced mortgage broker can potentially save you considerable time and money compared to what you might end being able to arrange on your own.
For the most part, a home construction loan is either acquired by an individual that his paying a builder for a turn key finished product where the property owner does not play an active role in the management of the construction project, or property owner is orchestrating a self build construction project whereby the owner will serve as the general contractor and coordinate the sub trades and all other elements of the build.
In either case, a home construction loan can be obtained by the property owner, but in the case of self build construction, the lender may want to see more evidence of the owner’s experience and ability to successfully manage a home construction project.
A home construction loan can be obtained from both bank and private mortgage lenders. There are benefits to both types of lenders that can cause you to select one over the other, even if you qualify for both.
For the most part, a bank or institutional lender will only provide a home construction loan as a first mortgage against the property where construction is taking place, requiring the builder or property owner to have 100% paid in ownership of the land in question. With a private mortgage lender, a home construction loan can be placed in a second mortgage position, provided that there is sufficient equity in the property and project to protect the private lender’s risk.
Regardless of the source of a home construction loan, there are typically three draws set out to advance the construction financing. The first draw is usually advanced once the building is closed in with roof, windows, and doors in place.
The second draw will normally take place once the dry wall stage is complete which will also encompass the completion of the wiring, plumbing, and heating systems being installed as well.
The third draw will be advanced at or near completion of the remaining work.
For larger homes, the building process can take a lot longer to complete, so there can be additional draws added to the project schedule to better manage the timing required to pay for materials and trades.
Before you start applying for a home construction loan, you should first put together a solid budget for the project as well as a timeline for completion that outlines when all the work elements will be completed. You should also have a set of professionally prepared plans and drawings completed to provide greater support for your construction financing request.
If you are planning a home construction project, or are in the middle of one and require a home construction loan, I suggest that you give me a call so I can quickly assess your requirements and provide home construction loan options for your consideration.
Every once in awhile we need to provide a construction bridge loan to a builder, developer, or property owner that is mid way through a construction project and requires additional funds to complete the work.
All of the construction bridge loans we place are through private mortgage lenders due primarily to the speed in which they can react to a bridge financing request.
In these situations, the money is required right away so that the project doesn’t stall out and other costs start being incurred. So being able to get something in place quickly is paramount to the the owner of the construction project.
One of the reasons that construction bridge financing can be placed rather quickly in most situations is due to these requests typically come near the end of the project when most of the building or construction risk has been removed from the lending equation. Also, the amounts required tend to be considerably smaller than the increased value of the property from building, providing ample securing to a construction lender, even if they need to be in second or even third position behind the primary sources of financing for the property and project.
The most common scenarios where a construction bridge loan is required is as follows:
Budget Over run: This is probably the one we see the most often where certain stages of the construction project have cost overruns due to inaccurate budgeting or unforeseen and unplanned events that created more costs for the project. The result is that the project ends up costing more than expected and requires additional funds to complete.
Change In Scope: While similar to the first scenario, a change in scope in not about the budget for the project being overrun by higher costs. This is a result of the builder, developer, or property owner making a conscious decision during the project to make a change to some aspect of the build which results in more costs for the project. This can be things like a bigger kitchen, finished basement, more landscaping, and so on.
Primary Construction Loan Shortfall: This is the least common of the three, but it does happen more often than one might think. Under this scenario, the primary construction lender that is in place is not providing draw advances when the builder or developer expects them to be made. And in some cases, the draws can also be cut back by the lender if in their view there is more of the project remaining to be completed than what the builder or developer is declaring. In any case, there is not enough money being advanced when required and the result is a need for incremental capital to offset the short fall.
While there are lots of private mortgage lenders in the market place, only a small handful will do these types of construction mortgages and do them quickly enough to meet the needs of the construction project.
The best way to get access to construction bridge loan financing is to work through a construction mortgage broker who has direct relationships with these types of lenders and has a track record for placing construction bridge mortgages.