One of the more critical elements of a commercial construction loan is being able to accurately forecast or predict the commercial construction loan amount that you can expect to secure for your project.

Not having a good, sound understanding of what this looks like can create problems for you and even kill your project altogether if you get started on your own and find out later into the project that the funds you thought you would be able to secure are not available.

The other thing to keep in mind is while I can provide a general guideline to get you started, every project is unique unto itself and every source of construction mortgages will have their own ways to determine their interest in financing a particular project.

That being said, here are some basic guidelines for calculating the potential commercial construction loan amount for any given project.

In very basic terms, without knowing anything about a particular project, its location, and so on, property owner, developer, or builder can expect that a commercial construction lender will consider viable projects at between 65% to 70% loan to value.

That tells us that the project is going to need to have a minimum equity amount of 30% to 35% at all stages of the project.

The second thing to understand is that the lender is going to determine the loan to value amounts based on market value appraisal at any given point and not the cost estimate or budget for the project.

This is an important item of clarification in that what someone builds may suit their own needs, or the needs of their tenants, but may not translate into a market value equal to or higher than the cost of construction.

As an example, lets assume that you have a commercial construction project in the works with a construction budget of $7,000,000 and the “as is” property value currently at $500,000.

There is no guarantee here that a commercial property appraisal on the proposed plans and budget will come back with a value of $7,500,000 on the completed build and real estate.

Any number lower than $7.5M will require either a large cash investment in the property, or the pledge of additional security to provide a higher security value to lend against.

At the same time, its also possible, that the end construction value is higher than the cost to construction, which may see the lender providing a higher portion of the construction costs.

But even in this last scenario, its going to be important as to what the lender is going to require you to invest in cash and to what stage of development, before they are going to be prepared to advance any money into the project.

And this is where it can be tricky to assess ahead of time what the market value of the project will be at different stages of development as well as how a construction lender will interpret the relevant risk and potential loan exposure they will be comfortable with.

To better understand the commercial construction loan amount that can be made available to a project you are planning or one you are in the middle of, I suggest that you give me a call so we can go through your requirements together, and discuss different funding options and amounts that may be available to you.

Click Here To Speak With Ontario Construction Mortgage Broker Joe Walsh For A Free Assessment Of The Potential Commercial Construction Loan Amounts That May Be Made Available For Your Project

The post Commercial Construction Loan Amount first appeared on Ontario Construction Loans And Mortgage Financing.

Retail building construction loan financing can be placed through several of our lending partners, depending on the size, location, and borrower requirements.

When we are talking about construction of retail building, this could include plazas, strip malls, big box stores, mixed use properties, or stand alone retail outlets.

In the case of most retail building projects, there is going to be a defined exit strategy whereby after construction the property owner or developer will either be selling the property, occupying the property, or renting it out. For the last two possibilities, the property owner will be retaining the ownership of the property and will require a long term take out mortgage to repay the construction loan.

Having a well defined exit strategy prior to the start of construction is going to be most important to banks and institutional lenders and will be a requirement with many of them in order to entertain an application for retail building construction financing.

Private mortgage lenders that fund retail builds will still be interested in the exit strategy as it will identify how they will be paid out at the end of the project, but they may not require that a commitment to purchase the property or fund a take out mortgage need be in place prior to funding the construction loan advances.

Other than a well defined and established exit strategy, the lower cost bank financing will require an equity investment of the total project costs of 25% to 30% in most cases. Private lenders will require similar equity investments, but typically do not have as many other lending/funding criteria to meet as compared to a conventional lender.

So there is a cost/benefit trade off between bank versus private construction loans for retail projects.

With banks, the cost of financing is likely going to be lower, but the application process will also take more time and have more requirements. In addition, the draw advance agreement from a bank and result in draw reductions and delays as well, requiring the borrower to have another source of capital to draw on in the event of an advance issue.

Private lenders on the other hand are going to be more expensive for retail building construction loans, but they also tend to provide commitments to fund faster and the draw advance process is more predictable.

So there are pros and cons to each form of retail building construction loans and mortgages.

The key to construction financing success is having a good match between the borrower’s needs and what a chosen lender can deliver with respect to rates, loan costs, terms, and so on.

The best way to secure the right retail building construction financing for your project is to work directly with an experienced construction mortgage broker who can quickly assess your requirements and introduce you to relevant construction mortgage lenders that are capable of meeting your needs in the time you have to work with.

Click Here To Speak With Construction Mortgage Broker Joe Walsh For A Free Assessment Of Your Retail Building Construction Loan Options

The post Retail Building Construction Loan first appeared on Ontario Construction Loans And Mortgage Financing.

Office building construction loans can be arranged for both small and large office building projects by lenders in our construction financing network.

The keys to financing any office building project are going to be the amount of time you have to work with, the amount of money or equity you are investing in the project, and the amount of space you have committed prior to building at market rents.

The more time you have to work with and the stronger your project is viewed in terms of location, design, and tenants, then the more likely you will be able to qualify for bank or institutional construction financing.

When there are some elements of an “A” credit lending package that are missing, then there is going to be the need to focus in on the next level of financing sources in the “B” credit or sub prime construction financing category.

While sub prime institutional lending will likely be slightly higher cost than a “A” credit bank or institutional lender, there can also be some advantages to this type of lender that should also be considered.

For instance, sub prime or quasi institutional lenders may be willing to consider a higher level of leverage than an “A” lender. Its not uncommon for banks to only finance 65% of hard costs. A sub prime lender may be able to finance up to 75% of hard and soft costs, depending on the strength of the overall project. Secondary lenders may also be open to considering a lower level of tenant commitment at the commencement of construction.

Once again, depending on the time you have to work with, and the factors related to any specific office building construction loan requirement, a private mortgage lender can also be a good choice.

Yes, rates are likely going to be a bit higher. But if you are working on a project that will be completed in less than one year, interest rate on advanced construction funds is less of a concern compared to a long term interest commitment.

The real advantages of private mortgage construction funding on office building projects is the speed in which financing can typically be put into place and the predictability of the draw advance schedule.

In some cases these two factors may cause a private mortgage to either be the preferred choice to the builder or developer, or the only choice.

The key here is to make sure that your project is lined up with the most relevant source of capital, which may not always be the lowest cost office building construction mortgage financing sources out there.

The best way to get an office building construction loan that is the best fit for your requirements is to work with an experienced construction mortgage broker who can help you navigate through the market and get you working with lenders that are most likely to be able to fund your deal in the time you have to work with.

Click Here To Speak Directly To Construction Mortgage Broker Joe Walsh For A Free Assessment Of Your Office Building Construction Financing Options

The post Office Building Construction Loan first appeared on Ontario Construction Loans And Mortgage Financing.

Construction Loan Application Form

If the Application Form does not open up un Your Screen, Right Click on the Link And Save it to a Location on Your Computer.

The Mortgage Application will be Saved as Bedrock.Mortgage.Application.pdf at the Location You Selected on Your Computer

Once the File has been Saved, Locate the File on Your Computer, Click on it And a PDF Reader will Open it up for You.

Most computers already have a PDF reader installed but if yours doesn’t, you will need to download the following:

Adobe PDF Reader…

http://www.adobe.com/products/acrobat/readstep2.html

The post Construction Loan Application Form first appeared on Ontario Construction Loans And Mortgage Financing.

A construction loan is a short term financing facility, secured by a mortgage registration against the property where construction is taking place, that is used to pay for the cost of the project as the costs are incurred.

Construction loans, like any other type of loan, require that the borrower provide a certain amount of equity in the project. This can come in the form of equity in the property that is under construction, cash investment in the project costs, or some combination of the two.

The construction loan provides funds via a draw schedule that outlines what amount of work needs to be done before money can be advanced towards the project.

The draws are typically defined at stages of construction when the collective work completed to that point would be viewed to have added value to the property.

Once a construction draw milestone is reached, the work completed is reviewed either by the lender or a third party appraiser to verify that everything is in keeping with the agreed to project plan signed off by both the borrower and lender at the start of the project.

If everything is in order at the time of a draw request, the funds ear marked for the particular draw are advanced to the borrower who in turn uses the funds to pay outstanding bills to suppliers, contractors, and service providers.

For a home construction loan or smaller commercial project, there are typically three draws during the time period when construction takes place.

From a borrower’s point of view, the advance of the first draw is a very important milestone in that until the first draw advance takes place, the construction loan provider does not have a vested interest in the property as all funding to that point has been provided either by the borrower or through arranged trade credit.

Once the first draw is advanced, the construction lender is going to be more concerned with funding the project’s completion as they now have funds into the deal at risk.

Each construction lender will have their own requirements in terms to draw administration and what can or can’t be paid out of the construction funds.

Typically, the construction loan will require debt servicing on a monthly basis as long as the loan is active. Debt servicing requirements can be different from lender to lender, so it will be important to understand not only the cost of debt, but how it will impact the project’s cash flow.

Once the project has been completed and signed off by the proper authorities, the borrower will be required to retire the construction loan in full. This can come from the borrower’s own resources, a long term mortgage if the borrower is retaining the property, or through the proceeds of sale.

Depending on the lender, there may or may not be a requirement for the long term take mortgage to be arranged prior to the start of construction.

A construction loan will be higher priced as compared to a conventional property mortgage due to the risk associated with construction. Once construction is complete, the risk is removed and lower cost forms of mortgage financing are then available for a long term repayment of the construction costs incurred.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Anatomy Of A Construction Loan first appeared on Ontario Construction Loans And Mortgage Financing.

Most construction loan agreements are written with a timeline for you to utilize the funds.

If you run out of time before the project is completed, even if for some unforeseen reason that extended the construction process, its going to be important to understand how you deal with this.

The best way to deal with any construction loan timeline is to make sure that whatever is agreed to between yourself and the lender is far in excess of what you will need for time, even when factoring in the unforeseen.

The next step is to make sure that you have the ability to extend the period or have an option to extend, and outline what the costs of an extension would be.

In the event that you do run out of time and there is no chance for an extension, then you should also clearly understand at the outset what the cost is going to be to potentially be breaking your long term take out mortgage if its connected to the construction loan and if you are forced to go elsewhere for the rest of the required construction financing.

While the expiry of the funding period doesn’t happen very often, it does occur and the result can not only be disruptive to the overall construction project, but costly to resolve.

One of the ways to deal with an expiry of the construction loan advance period is to get a construction bridge loan in place from a private mortgage lender.

If you have gotten a long ways into the project already, there will likely be an significant increase to the property value from the work completed, which can allow a private mortgage lender to go behind the existing construction loan in the mortgage registration cue and put a second or even third mortgage in place to provide the capital required to complete the project.

The smaller the amount of money required, the easier its going to be to get a construction bridge loan into place.

And if the project is close to completion, the private lender due diligence will likely be minimal, allowing you to get incremental funding in place in a matter of days.

Of course the best approach is to avoid the need for any additional constructions loans in the first place and this is accomplished by making sure your project plan fits the timelines provided by the lender plus some allowance for contingency time. And if you still are running out of time, that you have options to consider with the original construction lender that will be acceptable to you.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Construction Loan Time Limit first appeared on Ontario Construction Loans And Mortgage Financing.

The home construction loan terms you can receive can vary considerably from one bank or institutional lender to another.

These terms are further complicated by the fact that most banks and institutional lenders providing home construction loans also require you to quality for a take out mortgage with the same lender in order to get construction financing.

And while the types of terms are going to be very common from one lender to another, the specifics for any given term in a construction mortgage agreement can be significantly different.

Here’s a few examples of why this is important.

Length of Construction Draw Period. This represents the amount of time available to you to draw on the construction loan and can vary from 12 to 18 months among the primary institutional home construction lenders.

Take Out Mortgage Interest Rate Hold. While some lenders will provide a rate hold of up to one year on your long term take out mortgage that will be put into place at the end of the construction period, other lenders don’t provide any rate hold on the take out.

Mortgage Breakage Costs. If you choose at the end of the construction period to get the take out mortgage somewhere else, there will be a penalty associated with going elsewhere and the actual penalty and how its calculated can also vary considerably from one lender to another.

Debt Servicing.  While most construction loans will charge interest only payments during the construction period, there can be exceptions to this which can include other administration costs.  With cash flow an important part of the construction project to manage, this is an area that is clearly understood before finalizing a home construction loan agreement.

While these are some of the more potentially impactful terms and conditions, there will be several others  that you’re going to need to read through closely and make sure you understand them so that there are no issues or surprises down the road.

The best way to make sure you’re signing up for a home construction loan that makes sense for your project is to work with an experienced construction mortgage broker who can go through each lenders terms and conditions with you and help you arrive at the right decision.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Home Construction Loan Terms first appeared on Ontario Construction Loans And Mortgage Financing.

Perhaps the most important aspect of any construction loan commitment is the conditions attached to construction draws and the process for construction draws to be approved and advanced.

One can argue that this is even more important that the cost of funds as a construction project that doesn’t have a predictable source of capital is going to be incurring all sorts of costs in the form of late fees, delay costs, contract default charges, and so on.

This is where its going to be real important to read the fine print on your construction loan commitment documents before you sign them.

If you aren’t comfortable with the draw related conditions, then don’t sign and either negotiate better terms or find another source of funding.

To help you better understand the issue, the construction draw parameters written into construction mortgage commitments can range from a set amount that will be released upon a given level of completion, to a process where by each draw request will need to be audited to make sure that enough funds are held back to cover off what a third party appraiser indicates is left to complete on the project.

In the first example, the amount for each construction advance is known and clear, while on the second example, each draw can be adjusted according to the interpretation of the work completed by a third party appraiser.

Another example is when on construction loan provider will advance the funds for any costs related to the project, where the next lender will not advance funds to pay for the HST to suppliers. If you’re not aware of the latter, you can end up scrambling to locate an extra 13% of the costs to complete the full payments and keep everyone working on the job.

Bank or institutional lenders can get bogged down with their own administration process at times which can delay the issuance of a draw advance. Private lenders tend to be more predictable in terms of the amount that will be advanced at a given stage, and the timing for issuance of payment.

Cheaper sources of money typically will have a more strict draw management and administration process which can mean that you might have to have access to some form of reserve funds if there are any delays or unexpected draw reductions.

The bottom line is make sure you understand the draw conditions that the lender will impose as early in the application process as possible so you’re not wasting any time talking to the wrong sources of construction financing, while avoiding any potentially disastrous surprises that can result from being unaware of certain conditions you signed off on.

The best solution for dealing with this situation is to work with a construction mortgage broker who can not only direct you to sources of construction financing that meet your requirements, but also proactively explain the pluses and minuses of each lenders draw management process.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Construction Loan Draw Conditions first appeared on Ontario Construction Loans And Mortgage Financing.

Unlike a traditional mortgage, a construction loan registered as a mortgage can have some costing elements and terms that are not always obvious and which can come back to haunt you after you’ve agreed to accept the financing and are in the middle of your project.

And unless you fully understand how all costs will be incurred, its easy to pick a construction loan offer that is actually inferior to other offers of construction financing presented to you.

Let me give you an example of a construction loan that on the surface has great appeal, but after closer inspection may not provide the best value to you.

A private lender offers a construction loan of $1,000,000 for 6 months at 9% registered in a second position on the property where construction is taking place.

A competitive offer for a private construction loan in second position would be in the 10% to 12% interest rate range. So on the surface, the 9% deal would appear to be a very good offer.

But after further, review you learn that there is also a 3% lender fee on closing plus a broker fee.

In addition, you have to make monthly interest only payments on the full amount of funds approved, not on the amount of funds drawn. So say after 3 months you have only drawn on 30% of the construction loan, you are still paying interest on 100% of the approved amount on a monthly basis, whether you are actually utilizing the funds or not.

In terms of draw advances, the construction loan will not cover HST so you’re also going to need a separate source of funds to cover sales tax as well.

Finally, the 6 month interest term is likely enough time to complete the project, but if its not, there is a 3% renewal fee to extend the term.

When you add it all up, the effective cost is far greater than 9% and the potential cost gets even higher if you have to apply for an extension.

Don’t Get Overly Focused On A Construction Loan’s Interest Rate

Yes, the stated interest rate for a construction loan is important, but what’s even more important is the effective rate of financing that takes into account all the costs you’re going to incur.

And because a construction loan is going to be for a short period of time, the difference in interest costs by one or two percent are likely going to be less critical than 1) how the interest rate is calculated; 2) what type of monthly debt service you’re going to have to cover; 3) fees on closing; 4) Draw fees; 5) and potentially extension fees.

Unfortunately, some lenders and brokers sell the stated interest rate hard and write in all the other stuff which, if you don’t pay attention to, can create a lot of additional cost and cash management grief to your project.

In order to do a fair comparison, its best to set up a spreadsheet and do an apples to apples comparison of potential offers before you sign off on a commitment for funding.

The best way to go through the exercise is to work with an experienced construction mortgage broker who can help you quantify all costs and also make sure that the terms and conditions of financing are a good fit for your project.

Click Here To Speak Directly To Construction Mortgage Broker Joe Walsh

The post Construction Loan Costs first appeared on Ontario Construction Loans And Mortgage Financing.

“Construction Financing Cash Flow Needs To Accurately Address The Project’s Sources And Uses Of Funds”

Construction financing cash flow management starts with a well detailed construction budget and spending time line that accurately identifies when every type of expense will be incurred and where the funds will be paid from. This is an area where many projects break down and fall apart, even after being approved for a construction loan.

Here are some of the more common items to consider before even starting your project.

First, make sure you clearly know what expenditures will be covered by the construction loan and what items will not. Its not uncommon for construction mortgage not to cover HST which means you’re going to have to have another source of funds to cover these costs. Depending on the lender, the hold back may be larger than what is required by law, so don’t automatically assume they will be the same.

Second, with private mortgage construction loans, the lender may require you to be servicing the entire approved financing amount from day one, and not just the amount that is drawn at any given time. This can place a dent in your cash flow if you haven’t allowed for the added cost.

Third, get totally clear as to what is going to need to be completed and invested via equity in the project prior to the issuance of the first draw. The first construction draw is arguably the hardest to get as until the initial funds are advanced, the lender has not invested in the project so they may be quite particular as to assessed state of completion before any monies get advanced. To this end, its not only going to be important to clearly understand what needs to be done to get to the first draw, but its likely going to be wish to have some amount of contingency available if there is any discrepancy between the work you have completed and the appraisers assessment.

Fourth, make sure you have some source of contingency funds available throughout the project. While there is no hard rule for contingency allowances, many builder will work with an 8% to 10% buffer.

Outside of the actual construction, the hardest aspect of a construction project is understanding the timing of expenses and matching sources of funds to different uses. The better this is outlined from the outset, the less problems should occur with respect to cash flow during the life of the project.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Construction Financing Cash Flow first appeared on Ontario Construction Loans And Mortgage Financing.