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.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel