Its not uncommon that someone contacts me to better understand how to arrange construction financing for some form of facility expansion on an existing property.

The typical scenario has a property that already has a residential or commercial mortgage in place and the plan is to add to or expand the existing property holdings.

Another scenario would relate to someone asking if they could get the existing mortgage renewed along with some existing funds for construction that could be drawn down in the future.

In just about all cases, a construction loan is going to be a new borrowing facility, separate and distinct from the mortgage or mortgages now in place.

One of the main reasons for this is that the construction process has risk, so there is a higher cost of financing associated with this type of funding than for a completed project or existing piece of real estate where the buildings attached are in a completed state.

So the first thing to remember is that a construction financing facility is separate from all other loans or liens.

Therefore, its going to be near impossible to refinance an existing mortgage with some extra funds for future construction, especially at lower rates of interest, due to the different uses of funds.

Lower cost lenders will typically want a first mortgage position as well, so it may not be even possible to arrange construction financing from a bank where a significant existing mortgage is in place.

If there is enough equity in the property and the amount of financing required is small enough, you may be able to arrange a secured line of credit against the property.

But the most common form of construction financing in these situations is from private lenders as they are prepared to go into a second mortgage position to secure the construction loan for amounts that are more reflective of the end of construction market value.

The challenge with private lending is that when financing is approved, it is expected that funds will be drawn shortly there after as unlike a bank, private’s have a more finite amount of capital available, and want to have their money out in the market earning interest as quickly as possible after it becomes available.

So planning months ahead is certainly a good idea, but if private lending is the ideal source, then the application and commitment process will need to occur closer to when the funds are needed.

This is one of the reasons why it can be so important to work with a mortgage broker that has a focus on construction funding from private sources. The broker can get you qualified in advance and then place the deal with a private source that can fund your deal at the time when funds are required.

The last thing to consider in your pre planning process is how the construction funds will be repaid over time.

If you want to refinance it into your existing mortgage, then it would be wise to find out the cost and procedure for doing so. Planning further in advance, especially before the existing mortgage is renewed, may allow you to structure your mortgage renewal in such a way to make a further refinancing of the construction take out more cost effective.

Or if a new lender is going to be required for the refinancing of both the existing mortgage balance and the construction loan funds, then this should also be explored with options understood prior to starting the construction project.

Once again, there can be many variations around this theme which is another reason to utilize an experienced mortgage broker who can work through each scenario with you and come up with the best options to consider.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

Property Expansion Financing

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

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

Home

The post Take Out Mortgage Challenges Growing first appeared on Ontario Construction Loans And Mortgage Financing.

A construction to permanent mortgage loan is a very common form of financing at the end of a construction project where the completed building is going to be retained long term by either the property owner or a buyer.

In cases of a self build, there is typically a construction loan that covers off the cost of construction, followed by a construction take out mortgage or permanent loan that pays out the construction loan and any other charges against the property in favor of a long term residential or commercial mortgage, depending on the property type.

When the builder, developer, or property owner are building something for resale, the construction to permanent mortgage will be acquired by the buyer and will be used to purchase the property.

The large majority of cases where construction to permanent mortgage are required are residential builds where the property owner is responsible for both the construction loan and the long term take out mortgage.

In these situations, there are two basic approaches to securing a long term permanent mortgage.

The first approach is where the construction loan is provided by a bank or institutional lender who will also require that the borrower apply and be approved for a take out mortgage with them, prior to any construction draws being issued.

This is a somewhat restrictive process in that you are limited to the programs, rates, and terms that your source of construction financing is prepared to offer you which may or may not be the best available in the market.

The second approach is to use a private mortgage lender to provide the construction loan and then go to an institutional lender of your own choosing to secure the construction to permanent mortgage.

Under this approach, there can be a number of potential benefits available to you. First, you don’t have to get financing done before the construction project even begins, giving you some time to look around the market for a residential mortgage program that best fits your needs. Second, you are not locked into one lenders programs, providing more potential choices for your long term mortgage requirements. Third, its not uncommon that you can get a better permanent loan commitment once the construction project is completed or near completed. With the risk of construction removed, the lender may be willing to be more aggressive on rates and terms to get your business.

One of the most important aspects of the construction to permanent mortgage process is that you have your long term funding arranged and ready to go when required.

If there are delays in getting this in place, you may incur additional costs on the construction financing side (which tend to be at higher rates), or other types of penalties for either not paying out the construction lender on time or not having funds available to pay for the last of the construction costs.

If you require a construction to permanent mortgage for your current project or one you’re planning, I recommend that you give me a call so that we can discuss your requirements together and go over different options available to you.

Click Here To Speak With Construction Mortgage Broker Joe Walsh For Your Construction To Permanent Mortgage Requirements.

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

The early first quarter commercial financing stats are out and in a nut shell, lending is up.

It would appear that the commercial lending divisions for banks and other institutional lenders are starting to get off the recessionary fence and wade into deeper water.

Some of the lending activity reported in Canada and the U.S. includes some “mega loans” used for financing takeovers. This is hardly the lowest risk of financing out there, so when major brand names are shelling out big dollars on short term bridge loans like they have been of late with these takeover financing facilities, the strong indication back to the rest of us is that the commercial lenders are getting more aggressive and trying to increase the level of their profits, which have been reduced over the last two years due to the recession.

For construction mortgage financing, this is also good sign as it would indicate that more lenders are going to be looking to invest in the long term mortgages that are the corner stones of their portfolios.

That being said, nothing is likely going to change radically in the short term. Lenders are still going to be cautious and will probably be picking their spots fairly carefully for near future.

But compared to this time last year, when everyone was sitting on their hands, the prospect for getting access to cheaper forms of financing to either retire your current construction loan or refinance a long term take out from a year ago are getting better all the time.

If you’re at the start of a construction project right now or somewhere in the planning stages, now would be a good time to get your construction mortgage broker busy on making inquiries about different lender’s long term commercial construction take mortgage programs as even though there may be increased interest, the process for getting financing is place is still moving very slowly and is going to take a while to complete, so you may as well allow for it and start early.

If you are in need of a construction take out mortgage right now, looking for a better deal than what you have in place already, or just planning ahead, give me a call so we can go over your requirements together and review some of the potential options that are available to you in the market.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Commercial Take Out Options first appeared on Ontario Construction Loans And Mortgage Financing.

“Construction Take Out Mortgages For Builders or Buyers Are Not Always Available For Your Project”

It can be a crazy world out there.

Everyone can have their own interesting slant on what to build or what will sell in the world of construction. And some of the more creative designs and concepts have been known to be very lucrative.

But if you have a non conventional project in mind, and you happen to be able to secure a construction loan to build it, don’t be surprised if a construction take out mortgage may be difficult or impossible to get.

It’s the whole beauty in the eye thing sometimes when it comes to some of the projects that get completed. The problem though is that if a long term lender doesn’t believe there is a market for the more unusual, then you could be left scrambling, trying to pay out the construction loan before the lender ends up being the owner of your property.

One of the more common situations where this can become a problem is on an acreage or large lot where more than one building gets created, each with potentially different uses. From the builders point of view, this may be very practical and economical on a lot of levels, but from a take out mortgage lender point of view, the property and one of the buildings will likely be assessed for market value with the other non related building being completed ignored, regardless of its condition and functionality.

That’s why its always a good idea to at least scope out the market for a take out mortgage before the project commences even if one is not required at the beginning of the project by the construction mortgage lender.

Checking out the long term mortgage market is also an important exercise if you are planning to sell the completed project and property as it will give you a sense of whether or not your prospective buyer will be able to secure the long term mortgage required to complete the sale.

Mortgage lenders have definitely become more selective lately, so it would be considered wise these days to not leave long term financing up to chance later on in the project as you never know if and when a commitment may be forthcoming for funding to pay out the construction loan.

Click Here To Speak to Construction Mortgage Broker Joe Walsh

The post Make Sure Your Construction Loan Can Be Retired first appeared on Ontario Construction Loans And Mortgage Financing.

“For Owner Built Residential Construction Projects in 2010, Make Sure You Get Your Take Out Mortgage Secured Early On In The Project”

The current mortgage market is continually changing the way we need to approach getting construction take out mortgages in place.

With most of the construction financing provided by private mortgages, there typically can be a fair amount of time to shop the market for the best long term mortgage deal as many private lenders don’t require you to have the take out in place at time of construction, especially if you’re in well established residential market areas.

But that line of thinking is quickly changing as the mortgage rates start to inch up and are expected to increase over the short term. Waiting until the end of the project to get the take out mortgage in place could end up costing you more in the longer term if rates move against you.

So it makes more sense to spend the time at the beginning of the project to try and get both the construction loan and the long term construction take out mortgage arranged at the same time.

Even if you don’t have time to get all the details of a long term mortgage figured out right now, you can at least make an application and get a rate secured for the next 120 days. If you can complete the project by that time, then you will have at least one solid option to consider if rates move higher in the interim period.

Typically, the construction mortgage is the more difficult of the two mortgages to be approved for anyway, so if you’ve gone through all the work to prepare your construction budgets, get a post construction appraisal completed, and assembled the basic application, you might as well go the extra step right now and apply for the take out mortgage as well.

If your project is starting right away and you’re pressed for time to shop around for the rates and terms you’re looking for, then take advantage of the services of a mortgage broker to do most of the work for you.

That way, you don’t have to compromise your project management time while still being able to get the long term mortgage arranged as soon as possible.

If you have a construction project you’re about to start or are in the middle of that will require a take out mortgage, please give me a call so I can quickly assess your requirements and provide relevant options that we can go through together.

Click Here To Speak With Mortgage Broker Joe Walsh

The post Self Builders Should Be Arranging Construction Take Out Mortgages Earlier first appeared on Ontario Construction Loans And Mortgage Financing.