If you’re a property owner looking for a Toronto home builder loan for a self build construction project for a new build, addition, or renovation, you have a number of different construction loan financing options to consider.
For individuals with strong credit and annual reported income, bank or institutional construction mortgage financing is going to be the lowest cost option available. Banks will also require that you qualify for the longer term take out mortgage that will repay the construction loan at the same time you apply for construction financing.
For smaller projects such as additions or renovations, you could just decide to finance the work through a term loan or line of credit. At the end of the project you could then decide if you want to term out the construction costs into a new mortgage or pay it down as money comes available. The key advantages of using a secured or unsecured line of credit is that 1) the interest rate will be very good, and 2) the outstanding balance can be paid down or paid out at any time without penalty.
If you don’t qualify for a bank construction loan or want to keep your take out mortgage options open, you can also look at getting a private mortgage construction loan. The rate is going to be higher, but they tend to be easier to secure and manage. By utilizing a private mortgage, you would also be free to shop the market to find the best available take out loan versus having to take the best offer from an institutional lender that will provide both the construction and take out mortgages.
For builders, institutional and private mortgage options are both available as well. Bank financing will be more highly dependent on pre-sales of the completed homes than private construction mortgages, although the exit strategy will always be important to both lenders.
Because of the number of home builder loan options that can be available to you, its definitely worth while to be working with a construction mortgage broker who can help you better match up the construction financing approach that best fits your financial profile and personal requirements.
If you are a builder or property owner seeking a home builder loan, I suggest you give me a call and we’ll go through your requirements together as well as discuss the different construction financing options that best meet your needs.