From both a borrower and a lender point of view, private mortgages for construction loans continue to grow in popularity.
From the lender’s point of view, short term construction projects provide them with the opportunity to recycle their money two or three times a year. When you consider the upfront lender fee most charge on closing plus the interest rate charged on the mortgage while its outstanding, the annualized rate of return can be 30% or higher.
And considering how sluggish the stock market continues to be with more losses than gains for many investors, the private mortgage lending market provides a higher rate of predictable return.
Sure, there is risk to the lender. But its also something they can directly get involved in and manage versus being at the mercy of the stock trading market at large.
From a borrower point of view, private mortgage financing for construction loans provides a great deal of flexibility in exchange for a higher cost of borrowing.
Private construction mortgages tend to be easier to secure as lenders will focus on certain project types in certain areas where they are typically located and have a very solid understanding of the underlying real estate market.
The draw process for private mortgages is typically more straight forward and less likely to generate subjective draw cut backs that leave you scrambling for more cash.
For many self build projects, private mortgage lenders do not require that a take out mortgage be secured prior to the advance of the first draw, allowing the borrower more time to shop around for the best deal.
For builders that will be selling off the property to a buyer on completion, private mortgage lenders can be more aggressive on the amount of the construction costs they are prepared to cover compared to what a bank may offer. This again tends to have a lot to do with the private mortgage lenders understanding and overall knowledge of the real estate market where the construction is taking place.
Yes, private mortgages do cost more money in terms of interest rates, but when you factor in the time and additional costs that can be incurred with a bank construction loan, there may not be an appreciable difference between the two when the dust settles.
To find out more about private mortgage construction loans, please give me a call and I’ll make sure you get all your questions answered.