As I’ve written many times, its not uncommon for a construction project to require three or more separate construction financing or construction loan events during the lifetime of a project.

Knowing that going in can allow you to properly set up and arrange and administer the construction financing for each phase of the project.

Too often, the builder, especially for one time or first time build situations, tends to just put one foot in front of the other and only looks after the immediate need without any real consideration of how what gets arranged today can impact the financing that is going to be required down the line.

The key to construction financing is to have a phase of work completed at a time where the money invested into the project is sufficient in scope and amount to significantly increase the market value of the overall real estate, which then provides the basis for additional funding to be secured for the next stage.

In order to accomplish proper construction financing, the construction loan amount and draw schedule for each phase of work has to match up with with the projected market value. If there isn’t some type of reconciliation to funding and work to be completed and ending market value, then the project can become under funded and stuck looking for additional equity capital from somewhere.

One of the ways to avoid a poor construction financing plan in the first place is to start and stay working with the same construction financing broker throughout the process. This continuity in the overall process can pay big dividends during the life of the project. Too much fragmentation among different brokers and lenders can lead to considerable cash flow management problems that should be avoided at all reasonable costs. A experienced construction mortgage broker is going to help you focus in both on the big picture as well as moving the project through some of the administrative things that can hang it up in the draw management process.

If you’re in the middle of a construction project or planning construction financing for your next build, I suggest that you give me a call so we can discuss your requirements and outline a plan that will provide complete and timely funding.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Construction Financing – Start With The End In Mind first appeared on Ontario Construction Loans And Mortgage Financing.

“Construction Financing Interest And Offers Can Vary Considerably By Type of Project And Location.”

If you’re an active builder and developer, working most in the same localized market, there is a good chance that your going to be fairly well in tuned with you construction financing sources of supply. If there are any subtle changes in money that’s available at a given time, or changes in costs and terms from the lenders prepared to fund your deals, its not likely going to come as a bit surprise to you.

But when you’re looking at various projects in other locales than what you normally work, or even in areas you’ve never had a construction project before, don’t automatically expect that all construction mortgage lenders are going to act in the same fashion towards opportunities in the market. This regional diversity among construction lenders can be seen in both bank and private lenders. Just because a bank, for example, is across Canada, certainly does not mean that their policies for granting construction loans are going to be the same every where they operate. There are likely going to be adjustments or criteria that best fits their risk assessment approach in the local market.

The same goes for private mortgage lenders. With private lenders, most of what can be different is going to be related to price and exit strategy on the property being considered. As opportunistic lenders, private mortgage providers are going to price to what the local market will bear and what the competition is offering. This is not an absolute rule, but in general the more remote the location where the construction project is going to take place, the higher the cost of financing is going to be and the tighter the terms and conditions of construction financing as well.

Needless to say, one of the most important parts of planning out a project in an area you have not previously done business in is to 1) develop an understanding of the lender supply for your specific type of construction project, and 2) make sure that the true all in cost of funds can be covered by your cash flow and still yield the profit you’re after.

If you’re looking for construction financing in Southwestern Ontario, I suggest you give me a call so I can quickly assess your requirements and provide relevant construction loan options for your consideration.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Construction Financing Can Vary By Region 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.

“Here Are The Different Types of New Home Construction Loans And Their Related Requirements”

New home construction loans are typically either provided for a home builder that is building out lot inventory for the purposes of resale, or for a self build scenario where the eventual home owner finances the project all the way through construction.

For home builders, new home construction loans will require the builder to provide home owner insurance and have sufficient equity in the project to support the construction loan amount. If the builder owns a number of lots or even additional property, a lender can take real estate that is unrelated to the construction project as security.

The key elements for home builders is the equity they have in the project or can provide in the form of other real estate security, and the sale status of the home being built. If the home is pre-sold subject to the completion of construction, there are going to be more construction financing options available versus scenarios where builders are creating inventory for future resale.

For self build scenarios, new home construction loans can be secured through major banks and mortgage companies provided that the borrower is able and prepared to qualify for both the construction loan and the long term take out mortgage at the same time.

For the most part, banks don’t do construction loans unless they can get the long term mortgage asset as they are otherwise not interested in the risk associated with construction projects.

If a self builder can’t qualify for both construction financing and take out loan through their bank or similar institution, then they can apply for a new home construction loan via a private lender.

This can also be a benefit in that the private may be able to provide a higher loan to value ratio than the bank and the private lender may not require you to have the take out mortgage in place before construction begins, giving you more time to shop around for the best deal.

If you’re a builder, developer, or property owner looking to do a self build project for a new home, give me a call so I can quickly assess your requirement and provide relevant new home construction loan options for your consideration.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

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

“The Bigger Your Construction Project in Terms of Dollars And Complexity, The Sooner You Need to Start Looking For Construction Financing”

Whether its a residential or commercial project, for larger structures, especially ones with multi units that will be sold at the end of construction, the process for arranging a construction mortgage loan can get pretty involved and time consuming.

Similar to most types of business financing, the borrower or builder always assumes that the process will be relatively quick and that the lender will be able to interpret their information easily and be flexible with their requirements in order to render a decision in the borrower or builder’s favor.

And similar to most other types of financing, that assumption is almost always false.

There are a number of reasons for this.

First, even though mortgage lenders are fond of larger scale projects because of the financing fees they can earn, they are all very particular as to what they want to see in place prior to first providing a commitment and second, actually advancing any funds.

And the cheaper the source of money, the larger the requirements put forward by the lender.

Second, the underwriters that review your deal are people, but also individuals with their own learning and assessing styles. The larger and more complex the project, the more likely it will challenge human comprehension to some degree, causing more explanation and support over a longer period of time.

Third, the project doesn’t just happen over night. So, when you start the process earlier, with the “RIGHT” lender profile for your project and requirements, you are providing the lender with the opportunity to get to know you, get to know how you operate, and to see the project planning stage evolve before lender funds are required. This relationship building can make or break any deal. And like any relationship, it takes time to develop one where someone is prepared to act in your favor, especially if you are border line on some of the requirements.

Fourth, even though you may feel you understand what a construction financing source will require, there is no guarantee they will agree with what you provide to them as being sufficient for their lending guidelines. For instance, say that you’re building a commercial condo project and have the 60% level of presales that a construction lender requires. But when you go to provide the support for the sales, the lender reduces the total to 40%, based on how they verify presales, leaving you well outside of the stated requirements. The more time you have in advance to deal with this, the more likely you’re going to be able to figure out how to get the appropriate documentation in the lenders hands in order to get a working commitment for construction mortgage financing.

All of this is a balance in that you also need to be far enough along with the project planning to get someone to take a serious look at it.  Weak or thin information in the early stages will not get you an audience with a decision maker, nor inspire any confidence.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Don’t Leave The Construction Financing Process Too Long first appeared on Ontario Construction Loans And Mortgage Financing.

“For Big or Small Projects, Construction Mortgage Brokers Can Be The Key Element For Successful Construction Financing”

When I spend the time to go through the construction financing process with potential clients, its not uncommon that the individual(s) don’t believe me when I talk about all the different things that need to be managed and all the things that can go wrong with construction financing, especially when there are two or more construction mortgage elements to manage during the life of the entire project.

Its also not uncommon that the same people come to me in the middle of the project or after the dust has settled and said they should have paid more attention to what I was trying to tell them.

Construction financing can be a tricky process to manage once the commitment is in place. And the more people involved on both sides, the more likely there are going to be challenges to get draws advanced on time and for the requested amount.

The one component that can make or break the way the cash actually flows is the ongoing involvement of the mortgage broker. For me, finding and securing the construction loan for any stage of the project is only the beginning of the work involved. After doing this work for over 30 years, I have come to appreciate that a good mortgage broker needs to be monitoring the progress of the project and needs to get involved to help smooth out any issues that may arise in the administration process between the borrower and the lender.

And from a relationship point of view, this is not only a value added service on my part, but a way to keep both my customers happy. That’s right, both the borrower and the lender are my customers. If a construction loan falls apart for whatever reason, its going to be more difficult for me to utilize the same lender in the future as I’m going to be linked to that bad experience whether that’s justified or not. And from the borrowers point of view, I want the client to be my customer for a long time and to tell others about how well we worked together through the project.

If you end up working through a broker who has no appreciation of this dual customer relationship, don’t expect to get a whole lot of useful help if you run into cash flow problems during the project. And if you’re working with a lender directly, you truly are on your own.

Of all the different types of mortgages I work to arrange, construction financing is by far the most challenging and one in which the mortgage broker’s role can many times prove to be invaluable.

Click Here To Speak To Construction Mortgage Broker Joe Walsh

The post Mortgage Brokers Can Be Key To Construction Financing first appeared on Ontario Construction Loans And Mortgage Financing.

“There are Basically 6 Types of Construction Loan Mortgages and Two Lender Categories”

As we have previously discussed, there are 6 basic types of construction loan mortgages that you can acquire for different stages of a construction project.

The 6 construction loan mortgage types are:

• Land Acquisition Mortgage or Site Purchase Loan
• Site Development Construction Mortgage
• Builder Construction Loans
• Construction Bridge Loan Mortgages
• Condo Inventory Loans
• Long Term Take Out Mortgage.

While a typical construction project can require 2 or 3 of these construction loans during the time of elapsed time between planning and completion, the sources of funding can also come from different types of lenders.

From a lender category point of view, there are basically institutional construction mortgage lenders, and private construction mortgage lenders.

Both privates and institutional lenders can provide financing for any of the the 6 different types of construction loan mortgages listed above.  And for any given project, there can even be some combination of institutional and private lenders providing the collective construction financing requirments.

Even within these categories, there are many sub lender categories with respect to construction mortgage financing.

Within both the institutional lender group and the private construction mortgage lender group there will be specialization in only one or two areas of construction financing, and for larger commercial projects, the specialization can become more specific with respect to type of project and geography.

Private mortgage lenders in general are very regionally based for the most part which also lends to their strength as a lender in that they have a greater understanding of the local market in which they operate versus a national institutional lender with an area office in the same locale.

To say there are may slices to the construction financing market place would be a broad understatement.  Depending on the nature of a project and how well it progresses within its project plan, the construction financing structure can get both complex and convoluted with several different lenders involved during the course of the project.

As the dollar value of the project increases, it makes a great deal of sense to be working with a construction mortgage broker that has a construction financing focus for your type of project, in the area where construction will take place.   This may cost you a few dollars in brokerage fees, but compared to the money you can lose if construction financing for a stage in the project falls apart or is required on short notice to keep the project going, the return on investment can be considerable.

Click Here To Speak With Construction Mortgage Broker Joe Walsh.

The post Forms & Sources of Construction Loan Mortgages first appeared on Ontario Construction Loans And Mortgage Financing.

“Regardless of The Type or Size of The Construction Project, One of the Crucial Elements For Success Is the Predictability of Your Construction Loan Draws”

The project management goal for any construction project is to manage well those things you can control and minimize the risk of the things you can’t directly control.

When it comes to construction loan draw management, the most important aspects of this process is knowing how much money will be advanced towards incurred construction costs and at what time.

Even if you manage everything in the project to the letter, there can still be draw cut backs and draw advance delays that are completely beyond your control and are more a function of the lender and how they administer the mortgage commitment.

If you choose an institutional lender, you may want to secure a contingency allowance incremental to the construction mortgage commitment from another lending  source or your own resources to project yourself from lender draw reductions which are not uncommon with institutional construction loans.

Another way to minimize draw risk is to select a private mortgage construction lender in situations where you can qualify for either an institutional or private mortgage construction loan.  Roughly 90% of construction loans are provided by private mortgage lenders anyway, partially due to the builder’s desire to secure a more predictable construction draw process, but mostly because institutional lenders are not interested in the risk associated with construction financing unless they are going to get a long term take out mortgage.

Its going to cost more money in terms of interest costs and lender fees for a private construction mortgage, but the draw process on average is more straight forward and more dependable in terms of what money will be advanced and when.

At the same time, with the renewed growth in construction projects and more private lenders entering the market, you also have to be selective when choosing private lenders if at all possible.

For some projects, depending on their type and location, the private lending sources may not be easy to come by and can result in you working with a lender that you perhaps don’t have any previous experience with and that also don’t have much of a track record in the market.

And with bigger projects where the draw amounts tend to be larger, privates can create delays with advancing money as they move their own money around to cover all the projects they are funding at any one time.

So the second risk management measure to reduce the negative impacts that can be associated with construction loan draws is lender selection. Make sure you spend some time initially with a new private lending source to make sure you’re completely comfortable with the way they come across and present their business. If you can’t get comfortable, its likely a sign of things to come. Also, make sure to do some background and reference checking where possible to see what others have experienced with respect to lender service and draw advancement.

Remember that private lenders in many cases are just one individual or a small group of individuals that are putting their money into construction projects and each individual or group will have their own way of doing things which can be good and bad for their customers.

Even before lender selection is broker selection as most private mortgage lenders place their money through a mortgage broker. So having an experienced construction mortgage broker working for you that has a pre-existing relationship with the construction mortgage lender provides you with another resource to help work through and follow up on draw management issues as well.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

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

“The Key To Most Construction Mortgage Approvals Is The Amount of Money and/or Equity You have Committed To The Deal”

A construction mortgage, especially one from a private lender, is less concerned about the long term viability of the project or even who’s going to be the owner at project end, and more concerned about the market valuation of the project and borrower or builder equity investment.

The construction mortgage down payment can be in the form of cash or other security offered as collateral to the project. The amount of borrower investment can vary considerably by project, location, and lender, especially when you’re looking at commercial construction loans.

At the most aggressive end of the spectrum, construction mortgage lenders will tend to want to see a solid equity investment of at least 20% of the project costs. If most of the investment needs to come from cash injected into the deal, the down payment against the property will have to be completed prior to the first draw being advanced. Under this scenario, the goal of the borrower is to complete the work required to get to the first draw on budget so that the lender will start to advance funds from that point forward.

When there is substantial equity in the construction property or there is other property offered as security, the construction lender may be prepared to advance funds to cover the initial costs of the project. In some cases, the lender may even go so far as to advance 100% of the construction costs if the equity in the secondary property security is large enough.

But without a strong equity position either in real estate pledged for security or cash invested in the project to date, its unlikely that a construction mortgage applicant will be able to secure a mortgage commitment or any advances against one that is approved.

With larger scale projects where the equity portion is not sufficient to secure enough construction loan funding, the borrower will look to mezzanine funding sources to provide the additional equity for a share in the return of the overall project.

If you are in need of a construction mortgage for a project you’re planning or one you’re in the middle of, please give me a call so I can quickly assess your requirements and provide relevant construction mortgage financing options for your consideration.

Click Here To Speak To Construction Mortgage Broker Joe Walsh

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

“Here Are Some Typical Interest Rate Ranges For Different Types of Construction Financing Mortgages”

Construction loans are basically provided from three mortgage lender classifications and three mortgage registration positions, each impacting the risk to the lender and rate to the borrower.

In terms of mortgage lender classification for construction loans, there are the major banks, secondary banks, and private lenders.

The major banks tend to own the institutional construction financing in larger centers for residential and commercial properties as they will finance these deals at 2 to 3 percent over the prime rate.

The secondary banks and credit unions will provide more construction financing in more rural or less prime market area where the major banks have less interest and will provide construction mortgages more in the prime plus 4% to 6% range.

The third category, which is also the largest category for construction loans, is private mortgage lenders. Private lenders will provide construction loans for 8% to 10% on both residential and commercial properties.

These rates, which can still vary outside of the ranges mentioned, are related to a first mortgage position on the property.

Institutional lenders do not typically provide construction mortgage financing in a second position on a property unless the first mortgage is very small in relation to the value of the property prior to construction. But when a construction loan is issued in a second position, the construction loan rate is going to go up by approximately 2% on average.

The same is true of private mortgage construction loans in that the higher the mortgage registration position, the higher the interest rate on the construction loan. And unlike institutional construction mortgages, many private construction loans are registered in a second position against the title of the property after the land or site acquisition mortgage. In some cases where the equity is high enough and the overall project considered to be well suited for a strong real estate market, the private mortgage lender may even consent to providing a construction loan registered in a third position on title.

Similar to the institutional construction financing requirements, a second mortgage position on a private construction mortgage will command an interest rate increase of approximately 2% from what would be offered in a first mortgage position and a construction mortgage provided in third security position may command an interest rate increase of 4% to 8% above what would be charged for a first mortgage registration against the subject property.

Remember that these are only general guidelines you can apply to get a feel for what certain lenders and mortgage registration positions will charge and that the actual rates will vary by lender and construction project.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

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