First of all, any form of construction loan is likely going to be in the form of a mortgage registered against real estate.
The registration will be on the subject property where construction is taking place and may also be registered to additional security offered.
The mortgage commitment will outline the number of draws that will be advanced and likely provide a schedule of the stages of completion when a draw can be made.
Its important to understand the draw schedule and align your project work plan with it so their won’t be any issues when a draw disbursement is being made.
The mortgage documents should also outline how the draw process is administered including the paper work required, how a draw is requested, the lender’s process for verifying the work completed as well as the related costs, and so on.
It will also be important to understand how the construction hold back will be managed and if it will be available to you during the draw process, at the completion of the project once the lien period has expired, or not at all.
Construction financing is for a period of time, so in the event that there are any delays in completing the work or delays in getting a take out mortgage arranged, the borrower should be aware of any penalties that may occur or lender actions that can be taken.
At the time of mortgage commitment, you will receive a statement of mortgage that will outline all costs associated with the mortgage including interest rate, payment terms, lender fees, broker fees, appraisal fees, legal fees, and any other costs incurred by the lender to get the mortgage registered.
Remember that all property taxes will need to be paid in full and any existing mortgages will need to be paid up to date before the construction mortgage will be finalized.
Depending on the financing arrangement entered into, any equity investment in the project that is required will be identified including the related timing of when these funds must be invested in the project.
For instance, if 20% of the project costs must be covered off by an equity investment, do the terms of the mortgage stipulate that the borrower funds be invested at the beginning of the project before construction mortgage advances are made or at the end of the project after all construction advances are completed?
Construction mortgage terms and conditions will vary among lenders and may also be modified in some circumstances to meet the needs of the borrower.
In any event, if you have the time available, its always recommended to find mortgage terms and conditions that best suit your unique requirements.
And if you’re pressed for time, make sure whatever conditions you do sign up for are clearly understood and built into your project management process.
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