“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.

“Private Mortgage Construction Loans Dominate the Building Market For a Number of Reasons”

From both a borrower and a lender point of view, private mortgages for construction loans continue to grow in popularity.

From the lender’s point of view, short term construction projects provide them with the opportunity to recycle their money two or three times a year. When you consider the upfront lender fee most charge on closing plus the interest rate charged on the mortgage while its outstanding, the annualized rate of return can be 30% or higher.

And considering how sluggish the stock market continues to be with more losses than gains for many investors, the private mortgage lending market provides a higher rate of predictable return.

Sure, there is risk to the lender. But its also something they can directly get involved in and manage versus being at the mercy of the stock trading market at large.

From a borrower point of view, private mortgage financing for construction loans provides a great deal of flexibility in exchange for a higher cost of borrowing.

Private construction mortgages tend to be easier to secure as lenders will focus on certain project types in certain areas where they are typically located and have a very solid understanding of the underlying real estate market.

The draw process for private mortgages is typically more straight forward and less likely to generate subjective draw cut backs that leave you scrambling for more cash.

For many self build projects, private mortgage lenders do not require that a take out mortgage be secured prior to the advance of the first draw, allowing the borrower more time to shop around for the best deal.

For builders that will be selling off the property to a buyer on completion, private mortgage lenders can be more aggressive on the amount of the construction costs they are prepared to cover compared to what a bank may offer. This again tends to have a lot to do with the private mortgage lenders understanding and overall knowledge of the real estate market where the construction is taking place.

Yes, private mortgages do cost more money in terms of interest rates, but when you factor in the time and additional costs that can be incurred with a bank construction loan, there may not be an appreciable difference between the two when the dust settles.

To find out more about private mortgage construction loans, please give me a call and I’ll make sure you get all your questions answered.

Click Here To Speak With Construction Mortgage Broker Joe Walsh.

The post Why Are Private Mortgage Construction Loans So Popular? first appeared on Ontario Construction Loans And Mortgage Financing.