If you’re looking to secure construction financing for a self build construction project for a new single family residence you plan on occupying post construction, then its important to be taking a more holistic view of the construction financing process.

Depending on your individual situation, there can be two or three different construction related loans that may need to be arranged to complete the project.

In some cases, a loan is required to acquire the land and perhaps fund some site development costs. Then the actual building construction loan is used to complete the primary construction. And when the project is complete, a take out or long term mortgage is required to retire the previously registered mortgages on the property.

If the land is already owned outright, then a construction mortgage and a long term take out mortgage will still likely be required.

Thinking with the end in mind entails calculating out the effective rate of financing in the short term and the longer term for the entire project.

The combination of construction related loans that yields the lowest cost of financing is likely going to be your best option, all other things being considered.

For instance, a construction loan through a bank or institutional lender may yield the lowest potential construction mortgage available to you, but typically an institutional lender will automatically require you to secure a long term take out mortgage with them as well.

The combination of the two mortgages may or may not yield the lowest overall cost of funding over time as you are limited to the selection in long term mortgage rates and terms being offered by the lender and you will have virtually no bargaining power to negotiate down the rate based on competitive offers.

An alternative approach would be to select a private mortgage construction loan that does not require that you have a take out mortgage in place prior to the commencement of construction.

This will provide you with more time to shop the market for the best long term financing deal and typically once a construction project is nearer to completion, the offers can become more competitive.

Of course there is no guarantee that the combination of a construction loan from a private lender and a take out mortgage from an institutional lender will be cheaper, but it can be.

This is why its worth going through the exercise of comparing your options from the outset, including both the near term and long term financing in the process.

The best way to determine which way to go is to work with a construction mortgage broker who is well versed in both approaches to construction financing and can help you work through the different scenarios that are going to be directly applicable to your particular situation and requirements.

Click Here To Speak Directly To Construction Mortgage Broker Joe Walsh

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

“You May Be Surprised As To What The Biggest Risks To Self Build Construction Financing Actually Are”

Because most construction financing mortgage loans are from private lenders, the focus is more on property value versus annual earning and credit profiles.

So the largest risks associated with self build or home construction financing don’t really have anything to do with credit and repayment, but more about budgeting and project management.

That’s right, the budgeting and project management elements can pose a higher risk to the success of a construction project than just about anything else involved with a self build process.

And if you stop to think about it for a minute, the reasons are fairly obvious and logical.

First of all, lets define self build construction projects where the owner of the property is going to finance and coordinate the construction of a building structure on said property. In most cases, this is a residential home where the future home owner plays the role of borrower and general contractor. The property owner may also utilize a licensed builder, but the property is not owned by the builder.

In most cases, the self build will be the one and only such project ever undertaken by the property owner or owners in the case of husband and wife joint property ownership.

As a result, the individual or individuals have very little if any relevant experience for first making sure that all costs are accurately budgeted into the project and then being able to properly project manage the work to a successful completion, within the budget outlined.

In most cases, if there is a reasonable amount of project planning and some equity in the property, a construction loan will not likely be hard to procure. But once approved, there is certainly no guarantee that everything will progress according to plan and the ability to deal with cash flow and project management issues will be critical to not running out of money before completion and getting completed to the requirements of the long term take out mortgage.

Much of these risk can be taken away with a detailed budget that is fully supported by quotes and binding contracts between the self builder and the suppliers, contractor, trades, and sub trades. The budget needs to also allow for contingencies and stay away from unnecessary changes to the plan.

From a project management point of view, a detailed work plan arranged across a time line with costs associated for each element of work will go a long way to reducing the risks associated with this critical project component.

To better understand these and other project risk elements, please give me a call so we can make sure that whatever construction financing that gets arranged for your project is going to best suit the construction requirements.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Self Build Construction Financing Risks first appeared on Ontario Construction Loans And Mortgage Financing.