When I spend the time to go through the construction financing process with potential clients, its not uncommon that the individual(s) don’t believe me when I talk about all the different things that need to be managed and all the things that can go wrong with construction financing, especially when there are two or more construction mortgage elements to manage during the life of the entire project.
Its also not uncommon that the same people come to me in the middle of the project or after the dust has settled and said they should have paid more attention to what I was trying to tell them.
Construction financing can be a tricky process to manage once the commitment is in place. And the more people involved on both sides, the more likely there are going to be challenges to get draws advanced on time and for the requested amount.
The one component that can make or break the way the cash actually flows is the ongoing involvement of the mortgage broker. For me, finding and securing the construction loan for any stage of the project is only the beginning of the work involved. After doing this work for over 30 years, I have come to appreciate that a good mortgage broker needs to be monitoring the progress of the project and needs to get involved to help smooth out any issues that may arise in the administration process between the borrower and the lender.
And from a relationship point of view, this is not only a value added service on my part, but a way to keep both my customers happy. That’s right, both the borrower and the lender are my customers. If a construction loan falls apart for whatever reason, its going to be more difficult for me to utilize the same lender in the future as I’m going to be linked to that bad experience whether that’s justified or not. And from the borrowers point of view, I want the client to be my customer for a long time and to tell others about how well we worked together through the project.
If you end up working through a broker who has no appreciation of this dual customer relationship, don’t expect to get a whole lot of useful help if you run into cash flow problems during the project. And if you’re working with a lender directly, you truly are on your own.
Of all the different types of mortgages I work to arrange, construction financing is by far the most challenging and one in which the mortgage broker’s role can many times prove to be invaluable.