Don’t Leave The Process Of Arranging Construction Take Out Mortgages Too Long

“Just Because You Can Start a Construction Project Without a Take Out Mortgage in Place, Don’t Leave It Too Long”

While institutional lenders will require you to also qualify for a long term mortgage or take out loan with them before they will grant you a construction loan, the same is not typically the case with a private lender.

And because the vast majority of Ontario construction loans are granted annually by private mortgage lenders, the requirement to have a take out mortgage in place prior to draw advances on building loans for both residential and commercial projects are not always necessary.

At the same time, there are many private lenders that are closely aligned with long term institutional mortgage lenders in order to try and secure both the construction and take out mortgages. While the take out mortgage may not be a requirement at time of construction, you may still be obligated to accept one of their term out options to payout the construction financing loan.

For more independent private mortgage construction financing sources, they will only typically require a take out mortgage be in place prior to loan advance if they view the subject real estate to have a weak resale market and/or feel the location where the project is situated will not attract a lot of interest from term out lenders.

When a take out mortgage is not arranged from the outset of the project, there is also the risk that the process for trying to locate a construction take out loan during the project will end up being a distraction to the owner’s project management efforts, creating potential incremental cost and cash flow management problems in the process.

The other issue with applying later on for construction take out financing is that an approval may not be forth coming when expected, causing the payout process for the construction loan to be delayed, which will require the borrower to pay the higher cost of private lender construction financing for a longer period of time and potentially run the risk of the private lender taking foreclosure action to get the loan repaid.

When put under pressure to get a take out mortgage in place at the end of the project, the borrower may end up being forced to take a less than optimal long term mortgage alternative than could have been secured if more time was available.

If you’re in the process of planning out a construction project, or deep in the middle of one where a construction take out mortgage is required, I suggest that you give me a call so I can quickly assess your requirements and provide relevant long term take out mortgage options for your consideration.

Clock Here To Speak With Construction Mortgage Broker Joe Walsh

Construction Loan Application Requirements

“Here’s a List of The Primary Information Required by Construction Mortgage Lenders For Both Residential and Commercial Projects.”

Before you apply for construction financing, here is a basic checklist to follow of what the construction mortgage lender is going to want to see as part of your application request.

Your construction loan will get approved a lot faster if all of these items are covered off properly prior to making a formal application for funding.

And regardless of whether you’re project is residential or commercial, its likely that all the following are going to be required in some shape or form when applying for construction mortgage financing.

• Construction Approach. The lender is going to want to know who is going to be doing the building and what their related qualifications are. As an example, will the project be using a turn key builder, a general contractor, or will the borrower be conducting a self build utilizing sub trades where required.

• General Application Information. All lenders are going to want to know who they are dealing with and will require an individual borrower or corporate borrower to complete a construction mortgage application form. This can include the personal net worth statement of the main individuals involved as well as individual and business credit profiles.

• Plans, Drawings, and Permits. Completed and approved drawings and plans will be required to clearly represent what is being built, how its going to look upon completion, and that the proposed building project is approved by the appropriate authorities.  Construction financing requests can be considered without everything being finalized, but nothing is going to be disbursed or advanced against a construction mortgage until all approvals are in place.

• Construction Budget. While you may be able to get away with a fairly basic budget summary, the more detail you put into the budgeting process, the more credibility you establish with the lender. This also can go along way to avoiding cash flow problems down the road via items that are missed, cost overruns, etc. Be prepared to provide support for the major cost items including signed price quotes from suppliers.

• Building Time Line. This is another area where more detail can benefit you in a number of ways. The main benefit is for the lender to clearly understand what components will be completed at each stage so that accurate draw schedules can be set up. More detail can greatly assist project management which will help keep the project on track and avoid any delays that inevitably cost money.

Each construction project is going to have its own unique features which may lead to additional lender requirements, but for the most part, any residential or commercial construction loan request will need to include the items listed above.

To learn more about how to increase your chances of getting the construction financing you’re looking for, give me a call and we can go through your project and requirements together.

Click Here To Speak With Joe Walsh, Construction Mortgage Broker.

Securing Financing For Construction Site Development

“For Builders and Land Developers Seeking Construction Site Development Financing, The Exit Strategy Is All Important”

As we move out of March, 2010, I can slowly see several Ontario residential development projects coming back to life where there wasn’t much going on the last two years due to the economic slow down.

When you look at the province overall, there is a glut of projects that are trying to start or restart up their efforts, creating a potential for near term over supply in the market as its debatable how quickly buyer demand will return to more normal levels.

So when a builder or developer is seeking construction financing for site development, here are a couple of things to keep in mind.

First, construction financing on average is more difficult to secure overall for development projects as lenders are closely studying the local markets and the expected demand that drives the repayment of the construction development mortgage.

Typically, as sites are developed and sold, a portion of the sale proceeds are paid to the lender so that each site’s title can be provided to the new owners free and clear.

However, if the prospect of sales is viewed to be too low, the reselling period will take longer, resulting in slower repayment of the mortgage financing which leads to point number two.

In the current market dynamics, both private and institutional lenders are looking more closely at the history of lot sales for related developments as well as the pre-sales for the existing development project seeking financing, and the historical resume of the developer.  If there are a large number of lots in the development and the builder or developer plans to build out within their own group of companies, there will likely be less interest in the deal by construction mortgage lenders unless there is strong enough near term evidence of market development efforts that can generate the sales required in the time the construction mortgage needs to be repaid.

When you’re getting into developments larger than 10 or 20 lots, if your selling strategy includes selling to other builders and focusing your own sale and build out process on a smaller percentage of the lots, you’ve just created a more viable exit strategy for prospective construction loan lenders which will attract more financing interest in your project.

There are other marketing strategies you could pursue.  Just remember that the key to getting the capital you require is presenting a marketing plan that a lender believes will move the lots in the current market.

If you’re seek construction financing for site development, site acquisition, or building construction, I suggest you give me a call so I can quickly assess your situation and provide relevant options for your consideration.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Construction Loan Requirements

“Here Is A Fairly Comprehensive List of Construction Loan Requirements That May Be Required By A Construction Lender”

If you’re planning a construction project that requires construction financing, here is a broad based list of borrower requirements that you may have to provide with your application. The larger the project, the more likely more of these items will be relevant to you.

• Building Plans
  • Floor Plans
  • Property Elevations
  • Artist Renderings of the finished project.
• Construction Budget
  • Land Acquisition Cost
  • Hard and Soft Costs
  • Building Materials
  • Contractor Fees
  • Building Permits.
  • Sewer and Water Hookup
  • Lot Levies
  • Architect fees
  • Legal Fees
  • Appraisal Fees
  • Interest Costs and Mortgage Broker Fees
  • Contingency Allowance
  • GST
  • Site Supervision
  • Overhead
• Construction Contracts and terms
• Cash Flow Projections Outlined by Activity and Timing.
• Offer To Purchase
• Offer To Lease
• Projected Income Statement For The Project
• Phase I Environmental Report
• Project Feasibility Studies
• Absorption Analysis
• Recent Appraisal
• Purchase and Sale Agreement
• Borrower Information
  • Personal Net Worth Statement
  • 3 Years Historical Financial Statements
  • Credit Report
  • Related Construction Experience

Remember that this is far from an exhaustive list as other information can be requested, depending on the specific nature of the project.  In many cases, approvals will be granted subject to certain additional information being provided, or previously provided information being resubmitted in a more acceptable fashion.

The application of these requirements will vary considerably from one project to the next, but at least you have a better idea of the things that can be asked for when applying.

Commercial projects will require more of these items that single family unit projects,  but even home owner build situations can require significant amounts of information, especially when applying for institutional construction financing.

Right now, the lending market has tightened up due to the recent economic recession.  As a result, more requirements are being asked for that in the past, so the more pre planning you can invest in your project, the better your chances will be of securing the type of construction financing you’re looking for.

To better understand what items would directly apply to your project, I suggest that you give me a call so I can provide you with a customized list of the mortgage lender requirements that are likely going to be the most relevant for your project.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The Construction Mortgage Funding Process

“Before You Accept a Commitment From a Lender To Provide Construction Financing, Make Sure You Know Exactly What Will Get Disbursed and When”

When you’re getting ready to accept an offer for construction financing from an institutional or private lender, make sure you read through the commitment document carefully with respect to what costs will be covered in the draw request and how the hold back will be managed.

Starting with the hold back, institutional lenders will retain the hold back portion and typically not advance it at the end of the lien period.  So even though the total approval for construction financing includes the hold back portion, it will never be actually advanced unless their is a claim against the project.  Therefore, do not count on receiving these funds at the end of the project.

Private lenders can be very mixed on advancing hold backs.  Some privates will retain the hold back to protect their own interests, but still advance the hold back portion once the 45 day lien period has expired without any claims being made.  Other private mortgage lenders will advance the hold back portion with each draw, placing the responsibility with the borrower to manage the hold back liability.

In terms of the construction costs, another sometimes tricky item to look for in the commitment  is payment of  GST.  When you’re dealing with a general contractor, the lender will be paying them directly and may have a policy not to fund the GST portion.  If you don’t know this at the time of signing up for the construction mortgage, you can be left scrambling for additional cash flow to pay the GST to the builder when the draws come due.

If the information is not listed out in the mortgage commitment, make sure to go over the draw process and exactly what costs may not be covered as well as how the hold back allowance will be managed.

Getting a funding surprise in the middle of a project can cause immediate cash flow problems that can lead to delays and of course additional costs.

This is another reason why it makes good sense to utilize the services of a construction mortgage broker so that these types of funding requirements or restrictions are clearly known up front and proactively dealt with so that there aren’t problems down the road.

Click Here To Speak With Joe Walsh, Your Construction Mortgage Broker.

Construction Loans Can Be Hard To Come By

The Bar For Construction Financing and Other Forms Of Mortgage Financing Is Significantly Higher in 2010

As we move deeper into the recession, construction loans are becoming harder and harder to secure. Or put another way, lenders tend to be defaulting to letter of the law with respect to their application criteria and anyone that deviates from the requirements will have a hard time getting financed.

Gone are the days when close enough was good enough or when a certain amount of customization was almost expected by applicants.

And even though we are all hearing the positive news reports of how the economy is moving out of the recession, the capital markets are lagging behind and if anything are becoming more restrictive.

So how do you deal with this if you have a construction project that requires financing?

The simple answer is to make sure that your project is well planned out and that all the lender requirements are covered off to a higher level of completeness.

The devil right now is in the details, and for those that like to cut corners or live too close to the edge, there isn’t going to likely be much if any construction funds available to them by third party lenders or investors.

This is also where the benefits of a mortgage broker that specializes in construction get further magnified and why you may also want to stay away from less experienced brokers that occasionally dabble with a construction loan application.

There is less room for error in the application process these days, so its best to make sure you’re focused on the most relevant lenders and following their internal process to improve your chances of success.

The best way to accomplish this is through the assistance of an experienced construction mortgage broker who can leverage their lender relationships to stay on top of the constantly changing lender requirements.

Most projects do not have the luxury of extra time to find and secure construction financing, so in order to keep your planning time line on track in 2010, make sure that you over deliver on your application and the standard requirements, otherwise you could be searching for a construction mortgage for an extended period of time.

If you have a construction project that you’re planning or stuck locating financing for, I suggest that you give me a call so I can quickly assess your situation and provide relevant options for your consideration.

Click Here To Speak With Mortgage Broker Joe Walsh.

Builder Construction Loans

Builder construction loans are available to the occupants of a property or a commercial builder who owns the property for the purposes of construction and resale.

Regardless of the type of builder, the financing process is pretty much the same for construction on a single lot.  The construction loan is granted based on the equity value in the land where the construction mortgage is being registered, any equity investment the builder is making into the project, and the estimated fair market value of the property after the construction phase is complete.

When a builder acquires multiple lots for purpose of construction and then resale, the financing process will vary according to the build out strategy.

If the builder plans to complete construction on one commercial or residential unit at a time, then the financing amount requested will be based on the building costs of one or two units.  When the units are completed and sold, the construction loan is paid down and the approved funds can be made available at that point to the next project.

If the builder plans to perform construction on all the lots at the same time, a larger scale construction financing facility will be required to complete the work on the overall project and may require either approval of a term out loan at the end of the building process or a certain number of unit pre-sales to have been made prior to approval.

Alternatively, the builder can arrange a unique construction loan on each lot that will be retired at the end of construction either by an inventory loan or proceeds from sale.

In general, builder construction loans will depend on the amount of investment being made on any one property title that the construction mortgage will be registered on.  The larger the investment per unique title, the more lender requirements in terms of 1) size of down payment; 2) builder qualifications; 3) presold units and deposits held.

Commercial builders that develop a relationship with a construction lender over a series of projects may be able to secure better rates and terms over time that one off projects as the volume of repeat business and the predictability of the result will have a value to certain sources of construction financing.

If you’re a building contractor or owner/builder seeking a construction loan, I suggest that you give me a call so that I can quickly review your requirements and provide construction financing options for your consideration.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Construction Financing Success Has a Lot To Do With Lender Selection

In the world of construction financing, all lenders are not going to be relevant or best suited to your project.

Many times there can be considerable urgency in finding and securing a construction loan for a project about to commence and any source of financing will do, or will it?

In other cases, a property owner may become overly focused on the lowest cost sources of construction financing when they may not be the best fit for the borrower and the project.

A construction project is all about accurately predicting and controlling costs, coordination of work, and managing cash flow.  The combination of these three elements can have a lot to do with your lender selection.

For instance, if you want to use an institutional lender to provide construction financing, you have to make sure you have the time to prepare and provide the necessary information in the qualifying process that can be fairly extensive for some projects.  Furthermore, because draw approvals are very tightly controlled by institutional lenders, you’re going to need very precise project management in place, or a large contingency fund to cover any draw reductions that are not uncommon with this form of financing.

If you’re short on time to get the project started and want to focus on utilizing funding from a private construction mortgage lender, then make sure you spend a bit of time selecting someone that you’re comfortable working with.

Private lenders are mostly individuals, each with their own approach to approving and managing the loan process.  This is a departure from a traditional banking scenario where processes and procedures are well laid out and documented.  Therefore, it can be very important to not only understand the terms and conditions of a mortgage commitment, but also the manner in which a specific private lender will go about administering the draw advancement process.

Whether or not you choose an institutional or private lending solution, you’re still going to be working with an individual or individuals who will be responsible for working with you through the construction process.  If the people you meet and interact with don’t inspire trust and confidence, you would be highly advised to look for another source.

Mortgage brokers are also part of the mix, serving as the middle man for both the approval process and some or a lot of the draw advance process.  Being comfortable with your mortgage broker, if one is involved, is also important to the success of the overall process.

The negatives that can occur should be obvious.  If money is not advanced in an orderly and predictable fashion, the project could be delayed, resulting in additional costs that may be hard to cover and potentially kill the profitability and even completion of the project.

If you’d like assistance with locating suitable construction financing as well as lender selection, please give me a call so that we can discuss your project requirements.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Inspection Reports for Construction Loans

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

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

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

Here is an example of a lender inspection report.

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

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

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

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

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

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

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Here’s a Proper Budgeting Approach For Construction Financing

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

A construction budget plan should contain the following four parts.

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

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

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

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

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

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

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

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

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

Click Here To Speak Directly With Construction Mortgage Specialist Joe Walsh

Conditions & Requirements of Institutional Construction Loans

Construction loans approved and issued by institutional lenders will have both the construction loan and the take out or completion mortgage approved at the same time so that one will be paid out by the other at the completion of the project.

While there can be variations among lender programs, here’s what a fairly standard construction financing program looks like as well as its major requirements and conditions.

• The borrower needs to have clear title to the land or building lot prior to or at the time of the first progress draw.  No project draws will be advanced until title has been secured.

• A maximum of 4 advances are permitted during the construction process.  The first advance will take place after the foundation has been completed.  This is estimated to represent 15% of the total project.  The second advance will take place when the structure is fully enclosed and can be secured from entry (approx. 40% complete overall).  The third advance takes place when the drywall is completed (approx. 70% complete overall).  The fourth and final stage takes place at the completion of the overall project (100% complete).

• For each draw, your lawyer will be required by the Lien act to withhold 10% of the construction costs.  The amounts held back are paid out 45 days after the date of substantial completion if there are no liens registered.  If liens are registered, the hold back funds will be retained until the outstanding liens have been resolved.

• The construction mortgage registration and all construction progress draws are administered by the borrower’s lawyer and all  related draw costs (legal feeds, appraisal, inspection fees, etc.) incurred will be the responsibility of the borrower.

• The interest cost during the construction period will likely be between prime plus 2% and 4%. The interest cost incurred will be deducted from the borrower’s bank account via preauthorized payment on the first of each month.  The construction mortgage payments are calculated by applying the interest rate to the amount drawn.  These payments are interest only.

• When the construction project has been completed, a pre-arranged take out or completion mortgage will payout the construction loan at the time of completion.  This process is triggered by the issuance of an occupancy permit at the time of the final draw.

• Completion mortgage loans are typically approved at a variable interest rate that can be converted to long term fixed interest rate at any time without additional cost once construction is complete.

• For borrowers not on a municipal water supply service, water potability and septic certificates must be provided to the mortgage lender prior to advance of the first scheduled draw.  This condition can be met by the borrower obtaining title insurance whereby the related policy covers off the water and septic requirements.  If these conditions are not met, the lender will retain a $5,000 hold back amount until the certificates are provided.

• While under construction, builder’s risk insurance needs to be in place and a completed survey or title insurance will also be required prior to any advance being made from the first draw.

Once again, the above is will not apply exactly to all construction mortgage lender programs, but it does provide you with a good overview of the structure of institutional construction loans and their related conditions.

If you would like to review your financing options for a construction project, please give me a call and we will go through your situation together.

Click Here To Speak With Construction Mortgage Broker Joe Walsh.

Construction Loans For Home Renovation

Construction loans can be acquired for finishing your basement, adding a sun room, or completing some other type of smaller scale home renovation.

Because these types of projects tend to require less capital than full scale remodeling or actual home construction, the related construction financing will likely be much more straight forward to secure and manage.

If the project is going to be completed in a matter of a few weeks, then there will likely be one set of disbursements to consider, so a formalized draw schedule will not be required, greatly simplifying the overall loan administration process.

While these types of projects will likely increase the value of the home, the actual construction work  is not going to create a significant risk to the long term value of the property making the financing process much simplier.

Typically, small scale home renovations are financed in one of the following four ways:  1) refinancing of the first mortgage; 2) second mortgage with a fixed interest term; 3) home line of credit; 4) an unsecured personal term loan or line of credit.

Depending on your level of income, debt load, and credit rating, you may just be able to get an unsecured term loan or line of credit to complete the work.  If the repayment period is expected to be more than one year, you may want to set up a term loan and establish a set monthly repayment that fits your projected budget.

If the costs of renovations are expected to be paid for in less than one year, but an unsecured loan is not available or cannot be secured for a low enough interest rate, then a home line of credit where a second mortgage position is registered against the property would be the likely mortgage financing solution.

For a repayment period greater than one year, a longer term mortgage would be considered as a secured construction loan whereby a higher potential amount of borrowing and lower interest rates can be obtained.

The choice of refinancing the first mortgage or taking out a second mortgage will depend on the net cost comparison of the two options.  Whichever solution creates the most net benefit is likely the one you should secure.

As the size and scope of the renovation project increases, so does the requirements of the lenders providing construction loans.

For more information on what construction financing approach you should be taking, I suggest you give me a call so we can go through your situation together and determine the best solution for your project financing needs.

Click Here To Speak To Construction Financing Expert 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

Back To Home

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

Residential And Commercial Mortgages

Ontario Construction Mortgage Lenders

“Selecting The Right Construction Lender For Your Project”

There are a large number of construction mortgage lenders in the province that provide construction financing resources to builders, property buyers, and property owners.

Each mortgage lender will tend to have a unique construction finance focus whether it be residential homes under $500,000 in value, commercial buildings under $1,000,000, mutli unit complexes, and so on.

The market for Ontario construction mortgage lenders is further split up into institutional lenders (banks, credit unions, trust companies) and private lenders.  Institutional lenders are typically lower leverage and lower costs.  To utilize an institutional source of construction finance, the borrower will typically have high amounts of equity in the project.  When higher leverage is required, the private market has a number of lenders with their own financing models that can be utilized.

Availability and diversity of construction lenders is directly related to population concentration whereby the Greater Toronto Area (GTA) has significantly more construction lenders than the outlying areas.

Part of the reason for this is due to the fact that private lenders tend to work on more of a regional basis, maintaining coverage of relatively small geographic areas.  The rationale for this approach by privates is because many of them want to personally visit the properties and be close enough to inspect the construction progress themselves.

And regardless where you are located in Ontario, private lender tends to be more regional than provincial in nature, so the more remote your location, the less private lending sources that will be available.

Two of the key areas a construction lenders will evaluate prior to providing a mortgage commitment is 1) does the construction project have a take out financing strategy to pay out the construction loan at the end of the project, and 2) what is the resale market for the completed construction project.

In regards to the first question, a long term take out mortgage doesn’t necessarily need to be arranged prior to starting construction, but from the construction lenders point of view, there has to be strong evidence in the market that options for a take out mortgage are available for the specific project and location.

With respect to the second question, the potential resale value of the construction project helps establish the real underlying value of the real estate security to the construction mortgage lender.  If there is a very thin or even non existent real estate market for the project, it will be much more difficult to secure construction financing, and any construction loan that is provided will come with more aggressive and restrictive terms including higher rates and tighter advance requirements.

While there are many lenders available, there can be large differences in that way they manage their businesses and the patience levels they may have with project delays or any construction related issue that could arise which impacts the lending facility.

Therefore, its very important to work with an Ontario construction mortgage lender that’s not only interested in providing funding, but also one that has a solid reputation for working effectively with borrowers to get projects completed.

The best way to assure that 1) your focused on the right construction financing program for you construction project, and 2) working with a construction lender that’s going to be prepared to work with you should anything unforeseen occur is to utilize the services of a mortgage broker that specializes in construction mortgage financing projects.

Your best first step is to give me a call so that I can quickly assess your situation and provide you realistic options to consider.  From there, I will help you determine what course of action makes the most sense and manage the administration process to get everything in place.

Click Here To Speak Directly With Joe Walsh, Construction Mortgage Specialist.

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