First of all, if you’re planning a construction project and you’ve got multiple construction mortgage options in hand, you’re in great shape compared to the owners and builders scrambling around for construction financing capital at the 11th hour.
So the challenge then becomes deciding on which option you want to go with or making a decision to find better options if you think you can do better than what you already have or if what you already have does not exactly meet your requirements.
What criteria is the most important? Is the decision making process all about the cost of financing? What other things should carry some weight in the decision making process?
As far as rates are concerned, they are always going to be important to some degree. That being said, if the interest rate of a construction mortgage is your primary decision making criteria, that can also be a major mistake in many cases.
So how do you go about deciding what financing option to take?
First, make sure that you’ve thoroughly reviewed the written commitment that the bank or financial institution has provided. Does it meet all your project financing criteria including and excluding the interest rate? Look for the bank’s “out clauses” to determine how firm the commitment really is.
Second, identify any terms, conditions, or clauses that you don’t feel you can live with. Before dismissing the commitment there may be room to negotiate, especially if your project is strong enough to attract competitive offers.
Third, ask for the lender’s draw management procedures to better understand what will be required before funds are going to be advanced, especially for the first draw. If this part appears too onerous, then it can easily become a more important criteria than the rate.
Fourth, try to develop a comfort level with the people you will be dealing with. Construction mortgage administration can be a hair raising experience at times so you want to make sure that the people you’re going to be working are individuals you feel you can trust and will work towards a fast and fair resolution of any issues that may arise during the life of the construction mortgage.
Fifth, if the offers you have are close to what you believe is available to you, be careful not to get too greedy. The market can be very fickle and unpredictable. Even if you’re convinced that a better deal is out there somewhere, how long will it take to find it and if you can’t find it in time, will the other deals still be there to choose?