“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.

“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.

“If You Are Able To Qualify For Any Type Of Construction Financing, Do You Choose A Construction Mortgage Based On Cost Or Complexity?”

In a world where time is money, someone looking to finance a construction project needs to take that sentiment to heart.

The nature of construction projects is that they come with a certain level of risk where things can go wrong and they can become a time consuming to properly manage.

When it comes to construction mortgage financing, the same things are true. What also is true is that similar to all forms of financing, lower cost, means lower risk. In order for lenders to provide low rates for a construction mortgage, they are going to place requirements and qualifications in place that will assure them of a low risk lending scenario.

This is where the cost trade off for borrowers comes in.

Lower cost construction financing in most cases is going to be more work and more headache to deal with all the terms and conditions and their sometimes  seemingly unpredictable application to your project. There is nothing wrong with low cost deal. In fact I’ve never met anyone that doesn’t prefer it. But it does come with strings and each borrower who can afford to do so needs to decided if the added time and potential other costs that can come with it will be cheaper overall then selecting a construction mortgage with a higher interest rate but greater ease of use or convenience.

Its not uncommon for borrowers to find this hard to understand as after all many times their collective financing experience is based on buying a house, leasing a card, securing a credit line, applying for a credit card, and none of these are all that difficult to get if you have a strong financial profile and good credit.

But getting approved is only the first part. Meeting the conditions of the loan or mortgage are yet another. And when it comes to something like a construction project, the requirements and conditions can be very difficult to meet in some cases.

This is one of the reasons why private mortgage lenders provide a large majority of the construction loans issued on an annual basis across the province of Ontario.

Yes, private mortgages come with higher interest rates, but on average are approved much faster, provide a higher percentage of the construction costs, and have much more predictable and manageable draw schedules.

One form of construction mortgage financing is not necessarily better or worse than another. But to strictly be fixated on the interest rate may cause you to end up with a higher cost construction financing solution once you factor in all related costs, including the opportunity cost of your time.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Construction Mortgages – Cost Versus Complexity first appeared on Ontario Construction Loans And Mortgage Financing.

“Qualifying For Builder Construction Loans Has a Lot To Do With The Exit Strategy For Completed Residential or Commercial Units”

Builder construction loans can be secured by either a commercial builder who plans to resell the completed project or a property owner who plans to be a post construction occupant.

But whether you’re a builder or property owner, the basic process for qualifying for construction financing is largely going to be very similar when we’re talking about building a residential home on a single lot.  The constructon loan provided will evaluate the equity in the property where construction will take place, any investments to be made by the borrower against the construction costs, and the third party appraisal of what the post construction project will be worth. From this assessment, the lender will determine the amount of financing that can be provided against the construction costs, and the amount of investment, if any, that will be required by the borrower prior to issuance of the first draw down against the approved mortgage funds available.

When there are multiple lots involved with a builder application for financing, the qualification process for a construction loan will be based to a large extent on the exit strategy the builder has for selling off completed units.

For instance, if the builder has 10 plus lots to build out, but plans to build only two units at a time, the construction financing would likely be based on the costs for those two individual projects.  When the builder gets the buildings sold, the construction loan account can be paid down and funds will then be available for additional builds.  Each time a lot is sold, it will be released from the mortgage security, so the remaining real estate value will have to be sufficient to cover the equity requirement of the construction loan facility, otherwise the builder will have to provide incremental capital as lots are released.

If the builder planned to build out ten lots at the same time, the lender may require that in addition to the construction loan requirements, that either a take out mortgage be arranged to pay out the construction loan, or that a certain number of presales be in place prior to loan disbursements being made.

Or, much like a property owner coordinating a self build, a commercial builder can arrange a construction loan for an individual lot and unit build that will be retired at the completion of construction by a long term take out mortgage, real estate sale, or inventory loan.

For commercial builders, the larger the construction request, the more the lender is going to focus on 1) builder investment and timing, 2) builder qualifications, and 3) the number of presold units or other relevant exit strategy.

Once a builder gets a number of projects completed while using a particular lender for building construction financing, there is a good chance that the lender’s comfort level will increase which can result in more favorable terms and higher borrowing levels on similar projects.

If you’re a commercial builder or owner working on a self build project and you’re seeking a construction loan for your project, I suggest that you give me a call so I can quickly assess your requirements and provide relevant construction mortgage options that we can go over together.

Commercial builders that develop a relationship with a construction lender over a series of projects may be able to secure better rates and terms over time that one off projects as the volume of repeat business and the predictability of the result will have a value to certain sources of construction financing.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

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