There are three basic scenarios where private mortgage financing gets used for financing the construction projects of builders, developers, and property owners.
The first scenario is where the private mortgage is a preferred choice over a bank or institutional construction loan. Especially in the case of builders or developers that have utilized both bank and private mortgage financing for their construction projects, many will choose to use private mortgage financing more often than not due to the speed of getting financing in place, and the predictability of the draw schedules.
Even at a slightly higher cost, the benefits received can far out weigh trying to save a few dollars of interest on a construction loan.
The second scenario is where someone has started out with a bank construction mortgage and run into problems getting draws advanced somewhere during construction. Unfortunately, this is not an uncommon situation and can require the borrower to seek construction financing quickly from another funding source, which invariably is a private mortgage lender that provides construction financing.
The third scenario is when the project runs over budget for some reason such as an unexpected cost or a change in scope, and more capital is going to be required to finish the work.
Because the project is likely near or close to completion, the risks associated with a construction project have been greatly reduced and the work completed has added value to the real estate available for security.
So the situation provides for an equity based mortgage that can sit behind the existing first and potentially second mortgages already in place.
Some of the keys to these construction bridge loans is that a small amount amount of money is required for a short amount of time, providing a fairly low risk financing decision for a private mortgage lender.
Another key to construction bridge financing is that typically the money needs to be put into place in a hurry and private money lenders that make these types of loans are set up to assess and fund the deal in a two to five business day period.
Regardless of the situation you find yourself in, the best way to access a construction loans is through a construction mortgage broker who has direct access to private mortgage lenders that are prepared to fund construction projects at all different stages.
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