Here are some tips for financing a construction project.
First of all, its going to be important that you have all your paper work in order before applying for any type of construction financing.
Most specifically, you’re going to need completed drawings and a detailed budget and cash flow to show how much the project will cost and how long it will take to complete.
Things such as your building permit and any other regulatory requirements should be covered off as well prior to applying, or in the process of being completed.
A set of blue prints as well as a drawing or artist rendering can also be helping as it lets people get a strong sense of what the finished project is going to look like.
Second, you’re going to either need a qualified builder or a resume that shows that you have the experience and expertise to either perform your own build, or manage your project as a general contractor. Construction mortgage lenders are going to want to qualify the builder or developer requirements as this is a key area of risk management to them.
Third, you’re going to have to have your personal finances in order. Construction projects typically require the builder, developer, or property owner to have an equity investment in the project prior to any lender advances of at least 20% to 25% of the completed project value. This investment can be in the form of real estate or capital invested into the site development stage and early build stage.
Most construction loans will not provide the first draw advance until the the project is closed in, so you’re going to need your own source of funds to get to that point.
Also remember that a bank or institutional lender will want first position mortgage security while a private mortgage lender may be ok with a second or even third mortgage position depending on the project and the equity in the property.
For residential builds, banks typically require you to get both the construction financing as well as the long term take out mortgage through them, otherwise they will not provide construction financing by itself.
Each situation is going to be different and there can be significant pros and cons to consider between difference sources of construction financing from one project to the next.
If you are planning a construction project, or are in the middle of one right now, and require construction financing to either get started or complete the work already underway, then I suggest that you give me a call so I can quickly go over your situation and provide relevant options for financing a construction project.