“Should You Get Your Construction Financing From A Bank Or Private Mortgage Lender?”

With construction financing, especially for single family units or small commercial buildings, the age old questions with respect to construction financing is whether to try and secure a bank construction loan or a private mortgage for your project.

There are several pros and cons to consider, but for today, lets focus in on the key differences between these two main sources of construction financing.

Financing of any type from a bank or institutional lender is going to be the lowest cost available to you. But as low risk, low cost lenders, the qualifying process needs to be more involved, and the checks and balances involved in advancing funds can be considerable. To take advantage of bank related construction financing, you 1) need the time to go through the process and manage the draw administration and 2) have a back up source of funds to deal with any delays that can and do happen with draws getting advanced, and also to cover any shortfalls from draws being cut back or reduced.

Private mortgage construction financing is more based on the equity in the project, the marketability of the project, and the potential for a smooth and orderly payout at completion of work. Yes, the cost of funds is going to be higher, but if you don’t have the time to spend sourcing cheaper forms of money or have access to some type of contingency allowance, the lower cost money will likely end up costing you more in the long run anyway.

As a result, the majority of construction loans are from private mortgage lenders, even though the financing costs are higher.

Many builders, developers, and property owners view the added cost as a trade off for getting financing in place faster and having a more predictable draw schedule to deal with.

To be clear though, one type is not better than the other and the decision making process is not just about interest costs, but total project costs and selecting the source of construction financing that will allow the project to get completed within budget, in the time period you have to work with.

If you need a construction loan for a residential or commercial property, please give me a call and we can work through both your private and institutional construction financing options together.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Bank vs Private Construction Financing first appeared on Ontario Construction Loans And Mortgage Financing.

“It’s Important To Fully Understand All Bank Construction Loan Requirements Before Starting Your Project”

For a single family bank construction loan provided by a bank or institutional lender, there are lots of very particular rules you need to comply with before you’re going be able to fully take advantage of this low cost source of construction financing.

Remember that for single family builds, banks provide financing if you’re buying from a residential builder, contractor, or performing a self build.

For conventional or non insured scenarios where you’re putting down at least 20% of the cost of the project, remember that your investment must come from your own resources with the actual source of the equity you’re putting in being disclosed to the lender at the time of application. Another key with a conventional construction loan is that the bank or institutional lender will not put any funds into the project until the borrower’s equity portion is fully invested and verified. In addition, while the lender will consider a certain portion of the equity as sweat equity, the cash amount typically needs to be at least 50% of the required down payment.

In higher ratio scenarios where mortgage insurance is required, the borrower must once again verify at the time of application the amount and source of their equity investment that will go into the project. Because the financing amount can be greater than 90%, the borrower has to also be able to show that they can cover off a closing cost allowance of at least 1.5% of the cost of construction or appraised value of the property, which ever is lower. The same rules apply for equity being invested up front before the bank will advance any funds towards the project.

These rules will vary somewhat from bank to bank, but for the most part, they all touch on each of these particular requirements in some way, shape or form. And each institutional construction mortgage lender will be very particular as to the application of these rules and requirements, so much so that there are cases where funds never get advanced due to the borrowers in ability to completely comply with all the specific requirements of the mortgage.

The best way to get the most out of a bank or institutional construction loan is to work with an experienced construction mortgage broker who has successfully guided other home builders through the process.

If you require a bank construction loan or want to know more about your options and the process, please give me a call so we can go through everything together.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Bank Construction Loan Requirements first appeared on Ontario Construction Loans And Mortgage Financing.

“Here Are The The Typical Bank Eligibility Requirements For Construction Draw Financing”

A construction draw financing program through a bank or institutional lender will likely have very similar eligibility requirements to what we are about to go over.

First of all, there is the eligible purposes for construction financing in the first place. More specifically, in order to qualify for a bank construction loan or mortgage, you need to be doing one of the following:

• Purchasing a new home from a residential home builder.
• Purchasing a new home from a contractor (you own the land and have someone else build the home).
• Perform a self build (you own the land and serve as general contractor and hire licensed trades to complete the necessary work)
• Perform renovations to your existing home to a certain value (will vary with each institution).

If you have a use that qualifies, the next hurdle to get over is eligible property.  Most construction draw financing programs for single or multiple family units (no more than two units) requires that the borrower is an owner of the property and is occupying one unit.  This could include a residential home builder or a self build situation.  Properties that do not qualify are condos and any type of leased land.  Again, depending on the program, the builder/contractor and property may need to be registered under the New Home Warranty Plan.

The land where the building will take place must be a fully serviced lot or the cost to get it fully serviced are included in the construction budget being financed.

On a non insured basis, the construction loan cannot go beyond 80% of the appraised value or the cost of construction plus land, whichever is lower.

On a mortgage insurance basis, 95% of the appraised value of cost or cost of construction (once again, whichever is less) can potentially be financed.

These are the basic eligibility requirements that you first have to cover off before even considering applying for a construction draw financing mortgage.  The best approach to understand which of the available programs best fits your requirements is to work with an experienced construction mortgage broker with a track record of placing these types of construction loans.

If you require construction draw financing, please give me a call so I can review your planned requirements and discuss different construction mortgage programs with you.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Construction Draw Financing Programs first appeared on Ontario Construction Loans And Mortgage Financing.