“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.

“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.