Before applying for construction financing, you need a construction financing budget that clearly lays out the amount of capital you require and when its going to be required during the construction period.

This starts with making sure you have all your costs either committed to through contract or invoice, or signed off through quote or estimate from all suppliers of good or services.

And because there can always be things that go wrong or changes can be made to the plan during construction, you should also allow a reasonable amount of capital for contingencies.

Once you have a clear picture of the total amount of construction financing that is required, then the next step is going to determine how much of the total costs will need to be funded out of equity and how much can be debt financed through a construction lender.

In some cases, it may be wise to allow for either equity or a secondary form of financing to be available for all or part of the contingency funds. This is so that if there are any tie ups with getting funds advanced from the main construction loan that you will still have an alternative source of funds available to keep the project going.

When you have developed one or more construction debt funding options, its going to be important to look at a number of things in the funding proposal or commitment.

In particular, you need to make sure exactly what the construction loan will and will not cover off in terms of expenditures, how and when funds can be disbursed, and debt servicing requirements of the construction loan during the time you are utilizing it.

With respect to expenditures covered, don’t automatically assume that all potential outlays that you may have to make on the project are covered by the construction loan. For instance, there are some construction lenders that will not advance funds to pay the GST or HST on a project and require you to cover off those amounts from other sources. If this is not understood at the outset, you can run into a real cash flow crunch when it comes time to pay your suppliers and vendors.

Knowing how the construction mortgage draws are going to be advanced is also important so that you can match up the costs incurred to the draw schedule at the start of the project in order to make sure that each cost to be incurred is properly matched up to the proper draw.

In terms of debt servicing, you’re also going to want to know what you’re going to have to pay monthly in terms of principal and interest payments. This can vary considerably from not having to pay debt servicing at all as its prepaid in the loan, to having to pay interest on 100% of the funding commitment, regardless of whether you are using all the money at one time or not.

By having a clear construction financing budget in place before signing a construction loan commitment, you’re greatly reducing the chances of having cash flow problems during your project.

Click Here To Speak With Construction Mortgage Broker Joe Walsh For A Free Assessment Of Your Construction Financing Options

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

“The Supply of Ontario Construction Loans Is Always More Challenged In The Prime Building Season”

We are now into July of 2010 and the construction financing season is into full swing.

With construction starts growing month over month for the last several months, the number of projects under way will start to impact the available sources of construction financing in certain areas.

Remember that the majority of Ontario construction loans come from private mortgage lenders and this category of lender, unlike a bank or institutional mortgage provider, has more of a finite supply of capital available to fund construction projects at any given time.

And with private mortgage construction financing being more specific to region and project type, there is a greater chance than supply will start to get constrained in the summer months compared to other times in the year.

That being said, there is no risk of the market running out of Ontario construction financing. But in certain areas for specific projects, the supply can become periodically constrained creating more opportunistic pricing for lenders who are prepared to lend in those areas.

Similar to any commodity market, supply and demand will impact pricing and terms of sale or terms of financing in this case. As a result, you could end up paying higher rates than you need to if you can’t find better construction financing options in the time available.

To make sure that you get the construction loan you’re looking for, the best approach is to work with a Ontario construction mortgage broker who covers both your area and the type of project you’re working on. Mortgage brokers that are more focused on construction financing will have a larger supply of relevant private lenders than mortgage brokers that place the occasional construction mortgage loan.

Construction mortgage brokers will also tend to work with private lenders that cover a broader geography. So if your local construction financing sources dry up or start to jack up their pricing, private lenders from outside the immediate area may be your best option.

But to access them, you’re going to have to be working with a construction mortgage broker covering your area.

If you’ve got a construction project in Southwestern Ontario that your planning or in the middle of, I recommend that you give me a call so I can quickly assess your situation and provide relevant Ontario construction loan options for your consideration.

Click Here To Speak To Construction Mortgage Broker Joe Walsh

The post Ontario Construction Loans In High Demand first appeared on Ontario Construction Loans And Mortgage Financing.

“If You Can’t Pass The Pre-sale Test, There Won’t Be Any Construction Financing Advances”

For larger construction projects where the exit strategy for the builder or developer to pay back the construction is through the sale of finished residential or commercial units being built, then the key to not only getting approved for a construction loan as well as getting draws advanced will be your ability to pass the construction lender’s pre-sale test.

First of all, each lender is going to have their own way of assessing the number of pre-sales that are going to be required to get construction funded, but typically the proceeds from presold units will need to equal the construction costs.

Its also not uncommon for a builder or developer to have most of the pre sales in place at the time of loan approval, but still requiring additional sales prior to the first draw advance. But just because you have a construction mortgage commitment in hand, does not mean that the lender will have any leniency if you’re short a unit or two when money is required.

Even if you have all the required sales in place, you need to make sure that you can verify each sale to the satisfaction of the construction loan provider. And when I say each sale, please take me literally. Bank and institutional mortgage lenders are very much by the book in most cases, and will go through the supporting documentation for each sale you pledge as a pre sale to cover the construction covenant.

And while all lenders will have their own requirements and verification process, here are some typical things you can expect to be required. First, the pre sale agreement must be binding upon the buyer via a pre-approved sales agreement with a material deposit held in trust for the committed obligation. The amount of the minimum deposit may also be established by the lender. Second, the sales are going to have to be at arms length in order to avoid any contrived sales that are put together to make the presale quota. Third, block sales for several units will under go a higher level of verification to make sure the sellers intention is to truly purchase multiple units and that sufficient funds are being held to support the claim.

Click Here To Speak Directly To Construction Mortgage Broker Joe Walsh

The post Importance of Presale Verification For Construction Financing first appeared on Ontario Construction Loans And Mortgage Financing.