The new mortgage rules basically state that federally regulated banks cannot issue mortgage amounts greater than $1,000,000 on single family residential homes.
So if you are in the process of either planning or building out a dream home that is going to cost more than $1,000,000 to get into place, you should consider sitting down and crunching out the numbers to make sure that whatever your take out or long term mortgage plan that will retire your construction loan or loans, will be able to do the job.
This is especially true now for self employed individuals that cannot show enough income to perhaps get a low cost mortgage from a secondary bank or credit union.
You can still get a $1,000,0000 plus take out mortgage, but not for anything close to the premium rates offered in the market today.
And with mortgage programs in a constant state of change these days, it can be hard to pin down the best option, or combination of options that will give you the best possible result.
The other side of coin here is that delays in getting the long term financing figured out can cause problems with the construction mortgage lender.
Especially when private lenders are involved, the funds from a construction job could vary well be earmarked towards another project, so any delay in getting paid out could not only result in some significant penalties and fees, but also legal action on behalf of the lender to get their money back.
Just a couple of years ago, you could leave the take out mortgage process towards the end of construction and not have much problem coming up with one or more options for these larger construction projects.
But times have changed and are continuing to change around large residential mortgages which now requires higher levels of equity, and in some cases paying a higher cost of capital.
Some self builders are securing the best $1,000,000 first available and then covering off the rest of the take out amount with private money which drives up their cost of capital.
This is only a short term solution as well as most private lenders will only extend terms for one year unless renewal fees are paid for additional terms.
So while a private second can help get rid of the construction financing, you then have a year to either get more equity into the property or find some form of institutional lender that you can qualify with for a better second to bring down the overall rate of interest being charged.
If you are in the middle of a residential construction project that still does not have a take out in place, or perhaps at the end of one where the options are not very clear, I suggest that you give me call so we can go over your situation together and discuss different potential take out solutions.
Click Here To Speak With Toronto Mortgage Broker Joe Walsh