From the Desk of:
Construction Mortgage Broker
In my experience, whether you’re a builder, buyer, or property owner, individuals seeking construction financing tend to be in one of the three stages.
Stage One – They’re planning a project and are starting to do their research on construction financing sources, how construction financing works, etc.
If you’re at this stage, sign up on the right side of this page for the special report on construction financing pitfalls and you’ll also receive our information series on the topic of construction finance.
Stage Two – They’ve completed initial research and planning and now have more specific questions that need to be answered.
For individuals at this stage, I offer a free 15 minute phone consultation where you can ask me absolutely anything about construction financing and I’ll do my best to provide the answers. Click Here to schedule a time we can talk either by giving me a call or sending me an email.
Stage Three – They’re ready to secure financing right now for a residential or commercial financing project and require immediate assistance from a construction financing expert.
If this best describes your situation, Click Here and give me a call right away so we can quickly assess your options and get you a quote.
Construction loans for residential, commercial, and industrial projects are important elements to any construction project that requires financing.
Each application for construction financing is slightly different, but there are also a lot of similarities to consider.
Regardless of the type of construction project we’re taking about, management of cash requirements and timing must be well understood and calculated before any financing is applied for or acquired. A construction project will impact the cash flow of builders, suppliers, service providers, borrowers, and potentially the actual lenders, so the importance of accurate budgets, completion stages, payment timelines, and disbursement requirements can’t be understated.
Like any form of financing, a construction loan has to be secured by something of value. If the underlying property has sufficient equity to cover off the first draw of the project, a loan can be established as a second mortgage registered to the property. As construction advances, the property will grow in value and at predetermined points of completion more funds can be advanced against the increased value of the overall property.
These points of completion, or milestones, are established at the beginning of the project and reflect points in the project when the completed work would actually increase the fair value of the property. As an example with a residential home, the first milestone is typically the completion of the basement and foundation. The next milestone would likely include the framing of the building and enclosure of the walls and roof.
When a milestone is met, the lender will get a third party opinion of value from an accredited appraiser (most cases) to verify that sufficient work has been completed to a satisfactory degree to support an increase in property value. Once verified, the construction draw is issued by the lender directly to the builder and the project advances to the next stage. The process is repeated until the overall project is complete.
Construction loans are either stand alone bridge loans for only the period of construction, or they are part of a combination loan that starts out as construction financing and rolls into a pre-approved long term mortgage.
In the first case, the construction financing is provided by a lender that only issues capital for construction projects. The “take out” of the construction funds at the completion of the project will be done by a separate lender that may only be focused on completed projects.
For situations where separate lenders are involved, the construction financing entity will want to know that longer term financing is available or has already been arranged so that at the completion of the construction project, the construction lender can get paid out. If this is not well know or established before construction commences, the construction lender may suspend their financing approval until they are comfortable that a suitable exit plan exists.
In the second case, the same lending group provides the construction financing facility at the outset, and rolls the funds advanced into a longer term mortgage facility at completion. This type of arrangement tends to only be available in high net worth situations where the construction funds advanced do not represent a high percentage of the value of the available security.
In other words, the higher the percentage of the project that is financed by a construction loan, the more likely the construction financing element will be provided by specialized construction lenders not involved with the long term financing of the project. These specialized lenders are bridge financing experts that turn their capital many times a year by focusing exclusively on short term construction financing projects.
As the size and complexity of a construction project goes up, so does the requirements of the related lenders. Lenders will further specialize by types of financing projects and even by geography, so locating and securing construction loans for your exact requirements can be bit challenging at times.
Even when construction financing is located and secured, the terms and conditions of use can vary considerably from one lender to another and should be clearly understood before accepting a lender’s commitment.
As I mentioned earlier, the project management aspects of a construction loan can be significant and should not be taken lightly.
While I’ve personally worked on many successful construction projects, I’ve also seen many cases where there were significant delays in the project, budgets were not accurate and did not properly allow for any contingencies, the administration process and requirements of the lender were not well understood and created cash flow shortfalls that either put the project in jeopardy or stalled the project in an unfinished stated.
I’ve also successfully helped people that have come to me in the middle of a project where the sources of funding could not meet the needs of the construction schedule. Through some creative bridge financing, I’ve been able to save their projects.
The point I’m trying to make here is that there is enough complexity and uncertainty in any construction project to warrant the assistance of a professional to not only help you secure the best available financing, but also guide you through issues as they may arise.
That’s why the best first step when seeking a construction loan is to give me a call so you can get a free assessment of your options and learn more about how to successfully manage the overall process.
Providing Construction loans and Construction Financing Mortgages in the following Southern Ontario Locations:
Acton, Ajax, Alliston, Arnprior, Ancaster, Angus, Aurora, Barrie, Belleville, Bolton,Bowmanville, Bradford, Brampton, Brantford, Burlington, Caledon, Cambridge, Carleton Place, Chatham, Clarington, Clifford, Collingwood, Cookstown, Elmvale, East York, Etobicoke, Fenelon Falls, Fonthill, Georgetown, Grimsby, Guelph, Hamilton, Keswick, Kingston, Kitchener, Lancaster, Lindsay, London, Lucan, Markham, Mississauga, Newmarket, Niagara Falls, Niagara on the Lake, North York, Oakville, Orangeville, Orillia, Ottawa, Owen Sound, Peterborough, Picton, Port Hope, Port Perry, Richmond Hill, Sarnia, Sault Ste. Marie, Scarborough, Sharon, St. Catharines, St. Jacobs, St. Thomas, Stoney Creek, Stratford, Streetsville, Thornhill, Thorold, Tillsonburg, Toronto, Uxbridge, Vaughan, Wasaga Beach, Waterdown, Waterloo, Welland, Westport, Whitby,
Whitechurch, Stouffville, Wiarton, Windsor, Woodstock, Woodbridge, York