Value Of Home Renovation

“If You’re Looking For Home Renovation Project Financing, You Might Want To First Consider The Economic Value Any Given Project Contributes”

If you’re like most people considering home renovation, there are likely a number of projects you’d like to take on, but will limit what you actually invest in doing today based on the amount of capital you have to complete the work.

And what you include in the scope of work is going to have both an aesthetic value to you and an economic value to the market place.

Sometimes the personal value and economic value are very similar and sometimes they’re not.

One way to get a better idea of how much certain types of home renovation activities or projects can add to the value of your home is to utilize a valuation tool like the one provided by the Appraisal Institute of Canada. Here’s a link … http://bit.ly/G6S5a

This handy little tool allows you to put in cost estimates for different types of home renovation works and provides an estimated range of value or return on investment you can expect to earn over time from the completed work.

Keeping in mind that this tool provides you with some pretty broad ranges of potential value, the real benefit of using it is to get a comparative assessment between different renovation projects as to which ones add more value to your home than others.

Depending on your mindset and motivation for doing certain renovation work, this may not have any bearing whatsoever on what you choose to spend your money on.

But if economic value is important, this can at least give you something to think about as you plan out the complete scope of work and the related budget.

Another thing to keep in mind is that for renovation projects where construction mortgage financing will need to be procured, an assessed value of your home post renovation may be important in terms of the amount of money you can borrower.

Or put another way, the higher the value added renovation work being undertaken, the greater the increase in value in your home, and the more potential funding that can be raised against the future value of your home.

If you’re looking for a home renovation loan, I suggest that you give me a call so I can quickly assess your needs and provide relevant options for your consideration.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh

Construction Financing Possibilities

“There Can Be Many Different Ways To Arrange Construction Financing
For Your Project”

As a property owner or builder seeking debt financing for their construction project, one should always keep in mind that there really is no such thing as a standardized construction loan and that construction financing can be arranged in a number of different ways.

Many times someone will call me up with a specific request for construction financing along with a predefined way to put the money in place, and after some discussion it becomes apparent that there are other approaches to consider in addition to their current thinking.

Basically most construction loans per say are for a specific amount of financing, secured by a mortgage registered against the property.

And while we can say this is the typical form of construction financing, there are lots of variations that can come into play.

For instance, if a builder or property owner has another property, it may be far cheaper and simpler to get a home equity loan against the available equity than getting a traditional construction loan in place.

Or, if the amount of funds required is small, a personal term loan or additional line of credit may provide enough capital at much cheaper rates and with more flexibility when it comes to utilizing the funds.

The same can be said in choosing between a bank or institutional construction loan and one provided by a private mortgage lender.

The listed cost of financing will always be cheaper through a bank, but in the end it may not be the best fit for the project and may not end up being the cheapest either once all the dust is settled.

For individuals trying to figure out how to finance a construction project they are planning or are in the middle of, it can be easy to self assess incorrectly the best approach to take to meet the requirements of the project for the lowest cost.

Because of the potential different approaches that may be taken, it makes a great deal of sense to be working with a construction mortgage broker who can review everything you have to work with as well as your construction project requirements, and then propose financing options that provide the most benefit and value to you.

Utilizing this type of expertise, especially if arranging your construction loan is an infrequent or one time exercise, can end up being a considerable time and money saver in the long run.

If you would like to discuss construction financing approaches for your next project or one you’re currently working on, please give me a call and we’ll go through everything together.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Lower Cost Construction Loans

“There Is A Recipe For Getting Lower Cost Construction Loans”

Lower Cost Construction Loans in Toronto or the rest of the Greater Toronto Area area always going to be a function of the quality of the project.

And when I speak of lower cost, I’m not potentially referring to the lowest interest rate you could secure. My reference here is more to cost within a category of construction financing.

For instance, the lowest cost category of construction mortgage loans is from a bank or institutional lender, but many property owners and builders will still not choose this source of financing and prefer a private mortgage financing option for a number of different reasons.

Regardless of what type of construction mortgage you select or prefer, there can still be a pricing range for the financing costs in that range, whether that is within the discretion of the individual lender or a function of competition.

And the better projects are going to get better or lower cost construction financing offers.

There are many things can be considered by a construction mortgage lender with respect to deeming that a project is worthy of a lower rate of interest. Lets go through a few of them.

Project Scope And Location: A project that is located in a well developed market area for similar projects where the market is very active and resale value fairly predictable is going to be more interesting to construction lenders in general than a project that does not have these location and scope characteristics.

Project Organization: The more detailed the project plans, budgets, and time lines as well as the compliance with regulatory requirements at the time of the construction financing application, the stronger the project is likely going to be in the eyes of the lender.

Builder Track Record: If you’re working with a builder or are a builder with an established track record that is documented and can be supported by third parties, then there is going to be more confidence in the overall building process.

Any type of financing is about eliminating or reducing the risk of loss. The stronger a construction project is in all the areas above as well as in other areas that could impact the positive completion of work, the more likely it will not only attract considerable lender interest, but construction mortgage lenders will be prepared to compete for the project which is ultimately what we’re looking for to secure the best potential financing costs in the construction loan category of interest.

Click Here To Speak Directly To Joe Walsh, Your Toronto Mortgage Broker

Mechanics Of A Construction Mortgage

“How Is A Construction Mortgage Arranged Compared To Other Types of Mortgages?”

From a mortgage registration point of view, a construction mortgage is exactly the same as any other type of mortgage instrument. It can also be in first, second, or third position, depending on the situation. The key aspects of a construction mortgage over a conventional mortgage is the manner in which the lender assesses the borrower request for financing.

With a conventional mortgage, the property value is determined at the outset of the process and used to establish the amount of mortgage financing that can be provided. With construction financing, the initial property value is going to be important as well as the ending property value.

The starting point for a construction mortgage request assessment by a lender is to look at the existing property value where construction is going to take place. The existing property value and equity is essentially the initial down payment for the mortgage. The lender also completes, or gets completed, a post construction appraisal to determine what the value of the property will be after all the work is completed. With the beginning and ending numbers in hand, the initial equity in the property is assessed to see if it is sufficient to cover the lender’s risk. If the initial equity is insufficient, then the borrower will be required to self fund the initial construction work up until such a point where the owner equity in the property is sufficient for the lender’s program.

In most cases where the borrower or applicant for a construction loan has insufficient equity in the property at the outset of construction, the lender will require the borrower to fund all costs up to the completion of the first draw as its been defined. If the initial work is completed according to the requirements of the project and meets the approval of the lender’s third party appraisers with respect to increasing the value of the property as required from the outset, then the lender will be prepared to consider advancing funds to cover the remainder of the work.

I use the work “consider” in that at each stage of completion, the project will be assessed by the lender or their third party representatives to determine if the work is completed meets the requirements of the project and that there is sufficient funds remaining from the construction mortgage approval to complete the remaining work. If in the lenders determination the work is incomplete at the time of a draw request, or that there is more work remaining to complete the project than funds available in the mortgage approval, the draw request can be denied, delayed until the work is adequately completed to that stage of construction, or cut back requiring the borrower to invest further capital.

The key aspect of the process is that a construction mortgage gets advanced according to the completion of work that follows a predefined plan that adds value to the property at each step of completion.

Click Here To Get More Information On Construction Mortgage Financing

Construction Mortgage Planning

“Get A Jump On Your 2011 Construction Mortgage Planning Process”

For those of you looking at completing one or more construction projects in 2011, now’s the time to start the construction mortgage planning process.

Even if you’re looking at a late summer or fall start, getting a jump on arranging construction financing is typically a good idea for a number of reasons.

First, and almost without exception, property owners, builders, and developers will spend almost all their up front time planning out the work, leaving the construction financing aspect until the very end of the pre construction period. Inevitably, they leave it too long and it can be a challenge to get everything lined up and in place by the planned start date, especially for first time builders.

Second, in the early part of the year, there is going to be less application volume being put in front of lenders (at least in most years), which means lenders may be more flush with funds and will be wanting to get their money out in the market place. While early shopping doesn’t guarantee a better deal, it certainly is possible, especially with private lenders.

Third, in reverse to #2 above, if you plan to start a project in the prime building season in Ontario, there is going to be a lot more competition for available funds. Better deals will get better rates, and more applications in general will slow down the overall process for each individual applicant. As I mentioned, most people leave the construction financing process to next to the last minute, or at least towards the back end of the planning period, so the herd mentality is going to kick in later spring and early summer with everyone looking for construction loans all at the same time, putting greater stress on the financial system to process and approve requests on a timely basis.

Fourth, going through the construction mortgage planning process early on may uncover flaws in your construction financing assumptions, causing you to go back to the project scope and perhaps make some changes to the budget to more align with the construction funding your going to be able to secure.

The best first step is to find an experienced Toronto mortgage broker that you trust and start working with them early on in your planning process so that you can avoid some the problems associated with starting the process too late and gain the benefits of getting at it early.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Home Building Loan

“Toronto Home Building Loans For Self Builds and Professional Builders”

A Toronto home building loan can be secured for a wide variety of construction applications, the most common being a single family dwelling.

With single family homes, building loans are typically either for a self build project or for construction where the builder or developer is the borrower.

In a self build situation, the property owner has the intent to construct a dwelling and live in it after completion. The property owner can be the direct builder themselves but in most cases serve as the general contractor or director of their own project, hiring out the actual work to building professionals.

With a builder loan, the builder is the actual property owner and requires construction financing to complete a project for the purposes of resale. The house to be construction may be presold or to be built for future resale.

The main difference between the two for construction mortgage financing purposes is that self builds typically don’t require enrollment in a home insurance program where professional builders building for resale do.

A Toronto home building loan is available through both bank and private mortgage lending sources. Bank sources are always more focused on credit profile and repayment ability while private mortgage lenders are more interested in the post construction value of the property and the exit strategy to repay the construction loan.

Toronto home building loans from banks will typically require that both the construction loan and post construction take out or long term permanent mortgage are both in place prior to the commencement of construction. Basically, if you can’t qualify for both the construction loan and the long term mortgage at the same time, you will not be getting a home building loan from a bank as the only reason they provide construction financing in the first place is to access the preferred longer term mortgage security. Because many people cannot meet the banking criteria or don’t want to be constricted to the bank’s long term mortgage options, private mortgages are a very popular form of home building loan.

If you require a Toronto home building loan either as a property owner or a professional home builder, I suggest that you give me a call so I can quickly assess your requirements and provide you with relevant construction financing options for your consideration.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh.

Construction to Permanent Loan

“We Provide Construction to Permanent Loan Financing Options”

Construction to permanent loan options will vary depending on the type of construction loan you start with.

For instance, if you want to acquire a bank or institutional construction loan or mortgage, the bank will likely have a requirement that you also qualify for the take out or permanent loan at the same time. This is because the only reason that an institutional lender will provide a construction loan for home construction in the first place is to get access to the long term permanent mortgage that will be required at the end of the construction period.

So with an institutional construction loan, the permanent loan to take out the construction financing at the end of the project will be predefined and determined at the commencement of construction.

With private mortgage construction loan, the private lender may or may not require that the take out mortgage be arranged before the start of construction. In most cases, this is not a requirement.

As a result, you have considerably more time to shop around in the market for the best potential deal before the end of the construction period when the take out or permanent loan will be required.

The private mortgage route allows you to align yourself with any long term permanent loan program you desire with no restrictions as to the lenders you can consider.

With the institutional construction loan, you will be limited in choice and selection to the permanent loan pay out options that particular bank has available including the rates and terms that they offer.

At the end of the construction project, the costs registered against the property are paid out by the new permanent loan. This can involve several mortgages, especially if a mortgage was in place before the construction loan was acquired.

The payout of the property mortgages will take place once the construction project is certified as complete by the building inspector and the lien hold period has passed.

The best way to arrange financing for the construction to permanent loan process is to work with an experienced construction mortgage broker who can guide you through the different programs that will best suit your requirements and financing criteria.

If you advise on construction to permanent loan financing, I suggest that you give me a call so I can quickly assess your situation and provide relevant permanent loan financing options for your consideration.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Toronto Construction Loans Heating Up

“As The Summer Goes on Toronto Construction Loans Can Be Harder To Find”

We are now into July.

Happy Canada Day!

And the construction season is in full swing. This also places a high demand on available construction financing sources, which are primarily provided through private lenders.

Different from bank or institutional construction mortgage lenders, private mortgage lenders have a finite lending pool available to them. So as more and more construction projects are committed in the market, the potential available pool of private mortgage construction funds can go down and go down significantly for a period of time.

This is not to say that there will actually be a shortage of private mortgage constructions loans in a market as large as Toronto, but the available sources may start providing less than optimal rates and terms based on supply and demand.

Like any market, when there is more supply than demand, the suppliers are going to increase the prices or strengthen the terms in their favor. And because construction financing is very regionally supplied and very project specific, the supply and demand balance can get out of wack for a period of time.

So if you’re planning a construction project for this summer that is going to require private mortgage construction financing, I would recommend that you get your construction financing arranged sooner or later to avoid any of these seasonal anomalies that can happen with the local money supply.

The best way to make sure you’re getting the best available deal is to work with a construction mortgage broker that places construction loans in your area for the size and type of project your undertaking or in the middle of. Mortgage brokers focused on construction will have a much broader access to construction loans in Toronto versus those that occasionally dabble in construction financing.  If their sources run out of money for a period of time, they may end up redirecting you to less appealing options.

If you have a Toronto construction loan requirement for a project you’re planning or in the middle of, give me a call as soon as possible so I can quickly assess your requirements and see what construction financing options we can get locked in for your summer building schedule.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Importance of Draw Management To Ontario Builders

“When It Comes Right Down To It, The Most Important Part of an Ontario Builder Loan is Draw Management”

The bigger the job, the more difficult it is to manage cash flow of a construction project.

In fact, of all the construction financing aspects that are going to be important to an Ontario builder, the one that is viewed to be the most critical by many is draw management.

Being able to rely on the predictability and timing of construction draws is something that long time builders don’t take for granted and can easily be ranked as more important than the financing rate being charged to some extent.

Why?

If you’ve been a builder for any length of time, you will know first hand what its like to have to fight with your construction mortgage lender about draw advances in terms of getting them paid out on time and not having them be reduced by what appears to be very arbitrary assessment criteria at times.

The reality is that almost any construction project that requires construction financing is going to have a certain amount of draw management grief. The key is to minimize it and keep the project on track as much as possible.

For larger construction projects in competitive markets, builders may be able to create significant deal competition among lenders as each one tries to win to the business. This can potentially result in better rates and terms for the resulting Ontario builder loan.

The key watch out however, is making sure you end up dealing with a construction mortgage lender that has a reputation for being there when the draws are required versus someone who is known to be aggressive on rate to win jobs at times, but can be difficult to work with or unpredictable when it comes to advancing money.

If you’re going to take a flier on a new source of construction financing that you haven’t previously worked with or don’t know much about in an attempt to shave some of the interest cost out of your budget, just beware of the potential trade off you could be making and what the down side of such a move could cost on the flip side.

Its pretty much like anything else in life…the more predictable something is, the more its worth and worth paying for.

Click Here To Speak To Construction Mortgage Broker Joe Walsh

Deciding On a Construction Financing Lender

“When You Have Multiple Construction Financing Offers From Institutional Lenders, Which One Do You Choose?”

Ok, so you’re construction project is strong enough to attract multiple bank or institutional construction financing options.

Good Stuff.

But now you have to decide which option to take?

And how do you decide?

Is it all about the interest rate and lender fees?

This is a hard question to answer in an absolute sense, but I will start out by saying that’s its definitely not all about the rate.

Sure, we all want to pay the least amount of financing costs for anything that requires third party debt financing. But a construction financing commitment, especially on larger projects, will have a number of terms and conditions to consider by the borrower or builder.

For instance, what is the proposed draw schedule and what is the exact process for verifying draw amounts and meeting the requirements of the all important first draw?

Does the project owners have any available cash to deal with any draw short falls or cut backs imposed by the lender?

If advances are required against the property in its current pre-construction state for site or infrastructure development, what will be required to get the advance issued and how long will the process take?

A very important and many times underestimated consideration is the bank or institutional lender you’re working with, the people that will be administering your mortgage, and the organizations processes, procedures, and reputation related to the construction financing of similar projects. If the lender has a tough reputation related to draw requests, a cheaper interest rate thrown out to win the business may result in significantly higher overall costs if any incremental sources of bridge financing end up being required to offset draw reductions and/or draw advance delays.

The people involved in administering the mortgage are not an insignificant part of the process either. I would even take it one step back to the people you’re dealing with at application stage. The larger the institution, the more likely you’re going to be working with a front line marketing person who is going to be big on promises but short on lending authority. So before you start leaning towards one particular lender, make sure that you actually have a commitment in hand that will bind the construction mortgage lender versus a thinly disguised letter of interest or intent or term sheet that has more outs than a 9 inning baseball game.

This is also why its important to work with a construction mortgage broker with some gray hair (probably caused by working through lots of these types of deals) as determining what the best overall offer is for a given project can be difficult to determine, especially if you’re not working through this every day.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Mezzanine Construction Financing

“Mezzanine Construction Financing May Be Required For Larger Scale Commercial Projects That Don’t Enough Equity To Secure The Required Financing”

For low rise or high residential projects, retail developments, industrial developments, or revenue earning real estate that has long term profit potential, financing packages can be hard to put together.

Regardless of the size of the project, the typical required equity portion that a construction lender will require in the deal is 25%. As the project size increases, so does the amount of the equity requirement in terms of dollars.

If the project is sound and can withstand the risk associated with a higher degree of leverage, the builder or owner may need to utilize mezzanine construction financing to make the numbers work.

Depending on the project, Mezzanine financing can be as high as 75% of the equity component of the development. While the funds are being used to cover off the equity requirement, the capital is still registered as a mortgage behind the senior lender position and any other mortgage loans on title. These types of transactions can take on a number of different forms and can be quite complex. But if the project is large enough as well as the potential profit, there is a good chance that different mezz funds will take a good look at the deal.

There are some other requirements to remember as well for mezzanine financing. First, the mezz fund requirement would have to be at least $2 million for most funding sources. Second, the cost of capital would likely need to be between 20% and 30%. Third, if the project was a condo development, there would need to be pre-sales of between 20% and 50%, depending on the project. Fourth, the geography will be critical to the project’s eligibility for mezz financing. This is likely only going to be available in larger centers, or high end resort locations where the real estate market is very active.

Mezzanine loans can be arranged for period of 1 to 5 years, again depending on the nature of the project. There will need to be a clear exit strategy in place as well to secure this type of funding.

If you have a large commercial project that requires additional equity to make the capital structure work, give me a call so that we can discuss your project and capital requirements in more detail.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Construction Mortgage Draw Process

“Here is An Outline of How A Typical Construction Draw Process Works”

Ok, so you’ve got a commitment in place for your construction mortgage, you’ve started work and are getting close to the completion point for the first draw.

Now What?

First, lets take a step back and provide a basic overview of the construction draw process.

For a residential home construction project, there are typically 4 draws issued by the construction mortgage lender. In most cases, the first draw is issued after the foundation is in place, the second draw is issued when the structure is enclosed and secured, the third draw is issued when the drywall is finished, and the fourth draw gets issued at the completion of the project.

In direct accordance with the lien act, hold backs for each draw (typically 10%) will be retained in trust by your lawyer. All draw related costs including lender required expenses are to be covered by the borrower.

Hold backs are paid out 45 days after completion provided that there are no liens registered against the property.

Before the first draw can be issued, there are a few things most lenders will require.

First, a completed survey showing the boundaries of the new home, or title insurance, is required prior to the first draw.

In cases where the property is not connected to a municipal water supply, the borrower must have water potability and septic certificates prior to the first draw. It this condition is not met when the first draw is requested, the lender may cut back the draw and retain an additional $5,000 to $10,000 until such time that the certificates are available.

The lender will also either do an inspection of the work completed or hire a third party appraiser to assess the work completed and the work remaining.  This procedure is required by the lender to validate that the borrower’s investment and required equity in the project are appropriate before the lender will issue any advances against the construction mortgage.

Once everything is in order, the draw advance will be issued and costs incurred to that point in the project can paid up.

If you have any additional questions related to construction draws for either residential or commercial construction projects, I suggest you give me a call and I will make sure you get the information you’re looking for.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Arranging Construction Take Out Loans

“Current Market Conditions Indicate That A Construction Take Out Mortgage Should Be Arranged And Secured Sooner Than Later”

If you’re a home owner financing a self build construction project through an institutional lender, then you will already have your construction take out loan arranged at the beginning of the project at the same time as the construction loan gets approved.

But if the construction loan is coming from a private lender, which is the case with most self build projects, the take out mortgage may not need to be in place for the construction loan to get approved, allowing for more time to shop around for the best rates and terms.

While this has tend to work well in the past for many borrowers, the realities of the present mortgage market should cause you to rethink this approach.

With long term mortgage rates already going up once in 2010, there are indications that additional increases will follow. So the longer you leave the process for securing a construction take out mortgage and locking in a rate, the more likely it will be that you’re going to be paying a higher rate of interest for the near future.

The easy solution is to put in the extra time at the start of the project to get a long term mortgage secured so that you can get back to project management and not have to worry about what interest rates are doing.

At the very least, if you project is expected to be completed in the next 4 months, apply for a pre-approved mortgage and get a term rate locked in for the next 120 days. This will at least provide you with some rate protection if long term mortgage rates continue to rise in the short term.

If you don’t feel you have time to get everything in place right now, then take advantage of the services of a mortgage broker to do all the leg work for you with respect to shopping around for a long term construction take out loan. This will allow you to stay focused on your project while still working towards getting all the mortgage arranging taken care of.

If you are considering a self build project or are in the middle of one that’s going to need a construction take out loan, then give me a call and I’ll work with you to get the best take out option in place as soon as possible.

Click Here To Speak With Mortgage Broker Joe Walsh

Recession Keeps The Squeeze On Ontario Construction Financing

“Lenders Continue To Take A Lower Risk Approach When Considering Ontario Construction Financing Opportunities”

Most of what we hear these days about the recession is that things are getting better. That may be the case for monthly production and consumer confidence, but it doesn’t necessarily apply to the still very fragile capital markets, especially when tools like mortgage insurance are not available to reduce risk.

For Ontario construction financing, which is mostly provided by private lenders, the general approach is one of greater conservatism and caution when it comes to considering all types of projects, especially if they’re located outside of the Greater Toronto Area.

As an example, in the not too distant past in some of the bigger centers outside of the GTA, private lenders as a group were not overly concerned with borrowers having a take out mortgage arranged prior to advancement of construction loan funds. But at the present time, even if you’re building in the middle of cottage country which tends to still have a pretty active resale market, a take out mortgage has become a requirement more often than not for private construction mortgage approvals.

The second challenge for home owners, builders, and developers is that even when construction financing can be secured, the loan to value in many areas is in the 60% to 65% range versus 75% to 80% as you get closer to Toronto.

And rates can be higher as well, making projects harder to cash flow as you get further away from the city center.

Things are not likely going to change any time soon either. So even though development projects are showing more signs of life than in the last two years across the province, the process for finding and securing construction financing has become more complex for anything that isn’t in a prime real estate market.

The adjustment that needs to be made by builders and developers is to start working on arranging their construction financing further in advance to make sure they are going to have funding in place for their projected start times. And if turns out what’s available in a given area is higher cost and lower leverage than what was expected, the project may have to either be adjusted in terms of size, or delayed all together until more suitable financing becomes available, which in some areas could be quite awhile.

If you have a construction project that requires capital, give me a call so I can quickly assess your requirements and provide you with relevant options for your consideration.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Institutional Construction Financing Quirks

“Understanding How Bank Construction Loans Work Will Allow You To Get The Most Benefit From Them”

Many times people are for lack of a better term obsessed with getting bank or institutional financing for all their requirements. And for the most part, cheaper money is always going to be preferred over the alternative.

But cheaper money is lower risk money, and banks structure their deals to minimize their risk, which can also restrict you in the process.

So to be clear, I am not stating in any way shape or form that there is anything wrong with seeking to finance your construction project through an institutional lender. What I am saying is that you should make sure you understand all the conditions that go with the funding in order to get the full benefit out of the lower cost financing you are seeking.

For instance, here are a few of the more common requirements that come with an institutional construction loan.

• Construction mortgages are only issued by institutional lenders  in order for them to have the opportunity to add the longer term take out mortgage to their portfolio.  To make sure that happens, the lender will require that you qualify for both the construction loan and the take out mortgage at the same time.  If you can’t qualify for the take out mortgage, you won’t get the construction loan.
• Second, the construction mortgage, while only short term in duration, is typically written up under a 5 year interest term.  If you utilize the bank’s take out mortgage, the pre-payment penalty associated with paying out the construction loan early will be waved.  And with a construction interest rate significantly higher than the long term mortgage rate, you’re going to want to pay it out as soon as possible.
• Third, even though you can get approved for up to 75% of the appraised value of the completed project, the bank will only advance 60% to 65%, keeping the rest to fund the construction hold back.  But at the end of the hold back period, the held back funds will never be advanced …unless you utilize their approved take out mortgage to pay out the construction loan.

There are some other quirks to institutional construction mortgages that can come into play depending on your situation and the institution you’re dealing with.

To find out how to make sure you’re getting the most out of a institutional construction loan for a home build,  give me a call and we’ll work through all the requirements together.

Click Here To Speak With Construction Mortgage Broker Joe Walsh