Private Construction Financing

The private construction financing market continues to develop due to the benefits provided to both sides of the equation, namely the borrower and lender.

Private construction funding has become the construction mortgage product of choice for many buyers, home owners, and builders in the province of Ontario as well as other parts of Canada.

For private lenders, construction financing is an effective way to get their money placed into the market several times in one year, yielding a very solid level of return.

This is an example of a product that fits certain needs of the market while still charging a premium price.

Private mortgage financing of any type is not cheap compared to institutional lender rates for similar applications.  But one of the key differences with construction financing as compared to other forms of private mortgage lending is that the borrower in many cases will choose a private mortgage over an institutional mortgage offering.

Private construction loans on average, can be put into place faster, provide higher capital leverage, and offer more straightforward and predictable draw schedules that their institutional counterparts.

All things being equal, everyone that could qualify for traditional bank money at the lowest possible rates will take it every time… or at least they would in theory.

The challenges of bank based construction financing become the opportunity for the private lender.  Borrowers have to understand that the lowest interest rates are provided at the lowest levels of risk.  To determine if an application fits into a low risk category of lending, more assessment work is required by the lender which typically takes more time.  With most financing applications for just about any purpose, time is a factor in getting funds approved and in place.  So when time is a constraint, private money can become the solution.

The second challenge provided by lower cost money is the amount of funds the borrower needs to have invested or have available to invest in the construction project.  If a private mortgage solution will provide higher leverage than the next best institutional offer, then private money can again end up being the solution.

The third challenge related to low risk construction lending is the care and conservatism associated with construction draw advances.  If you’re a first time applicant, this is likely not a concern to you as you have no historical experience to go by.  But for a builder who is continually utilizing construction financing, the predictability of a private lender’s draw administration process may cause you to chose private construction financing, even if it requires you to pay a premium.

If you’re seeking private construction financing in Ontario, I suggest that you give me a call so that I can quickly assess your requirements and provide you with relevant options for your project.

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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