“How Do Lenders Go About Approving Construction Mortgages?”

A construction mortgage approval is primarily based on three elements of the application: 1) project equity; 2) market strength and relevance; 3) exit strategy.

Depending on whether you’re working with a bank or private lending source, there are going to be other factors involved in the lender’s decision making process, but for the most part, the three elements above are going to be core to any construction mortgage financing application.

For project equity, each lender program will have a required amount of equity to be in the project before the lender is prepared to advance any funds. For instance, if the borrower or builder was looking to complete a construction project where the post construction value was $500,000 and the lender required an equity position of at least $100,000, then either the equity in the land at the time of construction needs to be worth $100,000 or the borrower’s initial investment into the project will need to cover the difference between initial property equity and the $100,000 equity requirement.

Market strength and relevance is all about making sure that the project has a pre-existing market for similar construction in the area where construction is taking place. Lenders are less interested in unique structural designs in remote areas than more conventional designs in well established areas.

The last core element is the exit strategy. For an institutional or bank lender considering a construction mortgage application for a single family dwelling, the take out mortgage for paying out the construction loan must be arranged and in place prior to the commencement of construction, providing a clear exit strategy to repay the construction loan. For a private lender, the exit strategy may be more about the strength of the resale market, that in the event of default, in completion, the lender is confident that the property can be sold under foreclosure in order to repay the construction loan and outstanding interest in full.

Having all these three elements in place at the time of application for a construction mortgage will greatly increase your chances of getting an approval for your project.

If you have a construction project you’re planning right now or are in the middle of, I suggest that you give me a call so we can go through your requirements together and review construction financing solutions that can meet your needs.

Click Here To Speak Directly To Construction Mortgage Broker Joe Walsh

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

“Make Sure You Can Cover Off The Toronto Construction Loan Basics Before Applying For Construction Financing”

Toronto Construction loan basics are pretty much what’s going to be required for any type of construction loan in Toronto or anywhere else for that matter. If you want a construction mortgage lender to approve your project for construction financing, in the time you have to work with, then its going to be important to have the basics in place.

Failure to provide the fundamental information will get you declined and also waste time.

Here are the core things that all construction loan providers are going to what to see or know are in place prior to considering your application.

First, is the land owned and in control of the borrower and are the necessary licenses and permits for the proposed project in place? This is step one and without it, everything else you can provide is theory as it all depends on control and permission being granted to the owner, builder, or developer.

Second, do you have a detailed and complete set of building plans and drawings. A picture is worth a thousand words and failure to be able to clearly describe and outline your project can make it difficult for a lender to understand what exactly you’re trying to accomplish.

Third, make sure that you have a detailed and accurate project budget and time line of implementation. For all the numbers being provided, try to have as much supporting information as possible. For instance, all significant budget items like contracts and material supplies should be supported by signed agreement or written quotations.

Fourth, be clear as to the equity you either have in the project or will put into the project if equity is required. If you have it in the project, you should have a recently completed appraisal to support the current value of the property. If you’re going to invest it in the project, then you should be able to show proof of funds.

Fifth, outline who is going to be doing the building and/or general contracting, their resume, other credentials, and their contract.

Going in with the basics will allow you to get the lenders attention and move forward with the application process even if there are a few other things not yet available.

If you have a construction project you’re working on that will require a Toronto construction loan, give me a call so I can assess your requirements and provide construction financing options for your consideration.

Click Here To Speak With Toronto Construction Mortgage Broker Joe Walsh

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

“Construction Loan Advances Are Not Likely To Take Place Until The Proper Zoning and Property Use Permits Are in Place”

Its not uncommon that construction loans are arranged while a property rezoning, severance, right of way, or special use permit is being applied for through the appropriate governing body. Its also not uncommon that the related process can take significantly more time that you think it will, delaying the advance of any construction loan funds.

The reason why this is important is because the related property value and lender security may depend on the completion of the property zoning or registration that is required. Without the revised status in place, the property value can be worth significantly less and the construction building permit invalid.

This scenario typically applies to bare land purchases, site development work, or building construction.

For instance, with a bare land purchase of agricultural land, a rezoning to residential or commercial use needs to be approved prior to any building or development taking place. But even at the property buying stage, the a mortgage will only be made available for the value of the property at the time of purchase. If the agricultural land is worth $1,000 an acre and the rezoned property is appraised at $10,000 an acre, the lending value is going to be 1/10 the rezoned value until the process is complete.

Many times property owners and developers will purchase the land with the expectation of rezoning to follow soon after. Construction mortgages can even be arranged subject to the completion of the rezoning or other land title change requirement. But because these processes can become political in nature, multi step in structure, they can also become highly unpredictable. As a result, its important to make sure not to put the horse in front of the cart and progress too far into a construction project until the property classification and use requirements are either in place or close to completion.

Getting too aggressive can not only incur unnecessary delay costs but can also cause the construction mortgage lender to lose patience in waiting for the property requirements to be met, resulting in mortgage funding being lost in some cases, or the rates being revised due to the time that’s gone by.

Click Here To Speak To Construction Mortgage Broker Joe Walsh

The post Construction Mortgages Depend On Property Regulations first appeared on Ontario Construction Loans And Mortgage Financing.

“Here Are Three Key Steps To Getting Toronto Construction Financing In Place For The Terms and Rates You’re After”

When looking to secure Toronto construction financing for an Ontario based residential or commercial building project, you need to break down the construction financing procurement process in these three steps.

First, you need to make sure you’re applying to the most relevant construction mortgage lenders. All projects are going to have their own best supply fit and the sooner you zero in on the right audience, the faster construction financing will fall into place.

Second, once you’ve gone through the initial application process and found a construction mortgage lender that is prepared to commit to your project, you’re going to need to negotiate and finalize the conditions of a funding commitment. This is a step where lots of good funding opportunities fall to the way side due to the two parties failing to reach final agreement. Each project can have unique requirements and each lender will have its own funding policies, so its not a given that even though both parties are mostly in agreement that a final consensus on terms and conditions will emerge.

The last stage is actually getting the construction loan provider to issue a draw request. Before the first draw is advanced, the construction financing source does not have a vested interest in the project and can hold off advancing funds indefinitely if the lender does not feel that all the terms and conditions of funding have been properly met. Its not a given by any stretch that just because a signed commitment to fund a construction project is in place that funding will actually flow when its supposed to or at all.

Until all three steps have been complete, there is no Toronto construction financing. And because funding can fall apart at any point, there is always risk that there will be construction financing problems.

To increase your probability of both securing and getting a construction loan funded, its highly recommended that you work with an experienced construction mortgage broker that has experience navigating through all the things that can go wrong during the construction financing procurement process and help keep both your budget and time line on track.

Click Here to Speak To Toronto Construction Mortgage Broker Joe Walsh

The post Three Steps To Getting Toronto Construction Financing first appeared on Ontario Construction Loans And Mortgage Financing.

“If You Have Multiple Construction Mortgage Offers, How Do You Determine Which One Is Best For Your Project?”

First of all, if you’re planning a construction project and you’ve got multiple construction mortgage options in hand, you’re in great shape compared to the owners and builders scrambling around for construction financing capital at the 11th hour.

So the challenge then becomes deciding on which option you want to go with or making a decision to find better options if you think you can do better than what you already have or if what you already have does not exactly meet your requirements.

What criteria is the most important? Is the decision making process all about the cost of financing? What other things should carry some weight in the decision making process?

As far as rates are concerned, they are always going to be important to some degree. That being said, if the interest rate of a construction mortgage is your primary decision making criteria, that can also be a major mistake in many cases.

So how do you go about deciding what financing option to take?

First, make sure that you’ve thoroughly reviewed the written commitment that the bank or financial institution has provided. Does it meet all your project financing criteria including and excluding the interest rate? Look for the bank’s “out clauses” to determine how firm the commitment really is.

Second, identify any terms, conditions, or clauses that you don’t feel you can live with. Before dismissing the commitment there may be room to negotiate, especially if your project is strong enough to attract competitive offers.

Third, ask for the lender’s draw management procedures to better understand what will be required before funds are going to be advanced, especially for the first draw. If this part appears too onerous, then it can easily become a more important criteria than the rate.

Fourth, try to develop a comfort level with the people you will be dealing with. Construction mortgage administration can be a hair raising experience at times so you want to make sure that the people you’re going to be working are individuals you feel you can trust and will work towards a fast and fair resolution of any issues that may arise during the life of the construction mortgage.

Fifth, if the offers you have are close to what you believe is available to you, be careful not to get too greedy. The market can be very fickle and unpredictable. Even if you’re convinced that a better deal is out there somewhere, how long will it take to find it and if you can’t find it in time, will the other deals still be there to choose?

Click Here To Speak With Construction Mortgage Broker Joe Walsh.

The post Choosing The Best Construction Mortgage Offer first appeared on Ontario Construction Loans And Mortgage Financing.

“Toronto Construction Loans Can Be Much Easier To Secure With Better Terms Than What You Can Get Immediately Outside The City”

If you are contemplating or are in the middle of a construction project in Toronto proper, then you’ll be happy to know that the construction financing options both in terms of available lenders and program options are much higher in the big smoke than areas just outside of the GTA.

The reason for this is simple. Toronto based real estate is always going to have an active market. The closer you get to the core, the more sought after land is, regardless of what’s sitting on top of it.

So for a construction mortgage lender, some of the typical risks associated with construction financing are not nearly as severe as they are in more outlining areas where the real estate market, no matter how strong, is not Toronto.

As a result, there are lots of lenders servicing a wide variety of construction financing niches in the area. Because of the competition for projects in prime real estate areas, private mortgage financing utilized for construction loans can also be slightly cheaper than in other areas.

But aside from rate, the biggest gain a borrower or builder can get when looking for a construction loan is the percentage of loan costs that will be covered. If the project is in a good location and has strong market dynamics, its not unheard of for a private mortgage construction lender to provide 100% of the financing costs. In most nearby markets, unless there is considerable equity available in the underlying property, its pretty standard that even private mortgage lenders will want you to pay for at least the first 20% of construction costs before the first mortgage advance can take place.

Banks and other institutional lenders are also more aggressive in the Toronto area for the same basic reasons. This doesn’t necessarily mean that bank issued construction mortgages are going to be any easier to deal with in Toronto compared to other locations, but it does provide more rate and term competition among lenders as financing on the long term asset through the construction take out mortgage will be a strong addition to any mortgage lender’s portfolio.

Click Here To Speak Directly to Construction Mortgage Broker Joe Walsh.

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

“There Can Be Significant a Difference Between Securing Construction Loans in the Toronto Area Than in
The Rest of Ontario”

Builders and developers tend to find out the hard way that the construction loans in Toronto are typically both easier to secure and can be acquired for a higher percentage of the project costs compared to most other areas of the province outside of the GTA.

The the differences can be significant with Toronto based projects securing loan percentages as high as 80% and out lying areas 50% to 65%.

With the current capital market uncertainty, its also getting harder for lenders to take interest in projects outside of the Greater Toronto Area.

Most construction mortgages are issued by private lenders and most private lenders have a preference for construction loans in the larger centers where the resale markets and property values tend to be more stable, or at least that’s their perception.

This is good news for construction projects close to Toronto and not so good for places farther away. Even in cottage country, where the resale market is still quite strong, there is more apprehension by lenders to get involved in larger projects, and when they do take them on, the cost of financing tends to be higher than what would otherwise be expected for a construction loan.

The net result is that builders and developers not only have to start working on arranging financing for their projects further in advance, but they also have to be prepared to sink more of their own capital into the projects due to the likelihood of securing lower loan to value ratios than they are used to.

And because there is more competition among lenders for Toronto area projects these days, depending on the exact project type and location, there are opportunities for great private mortgage construction rates as lenders try to get their money placed in order to get their targeted return on capital.

So to get financing in rural areas or get the best deal in the GTA, more time is likely going to be required in both cases to locate and secure the most relevant construction financing for the overall project or particular project stage.

This is where a construction mortgage broker can become very important to the process and just another reason why you should give me a call so that we can review your requirements and work towards getting you the best construction financing deal available.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Construction Loans In Toronto Versus The Rest Of The Province first appeared on Ontario Construction Loans And Mortgage Financing.