Here, we are focused in on the latter and want to provide greater insight as to why a private mortgage could be a good fit for your home construction loan requirements.
First of all, a bank or institutional lender will only provide a home construction loan if it can be registered in a first position while a private mortgage lender will consider second mortgage security if there is sufficient equity in the project to cover the lender’s risk.
Depending on the value of the property, and how you have your finances set up to proceed with your home build, a second mortgage may work better.
Second, a bank or institutional lender will not typically advance any money until after the project is closed in. This will require the roof and all doors and windows to be properly installed. All the funding up to that point is your responsibility and an institutional lender may even require you to place part of the initial funding as equity into the project.
Once again, depending on the equity position you hold in the property where construction is taking place, a private lender can potentially advance you money at the start of the project as well as at the closed in stage of the build. This can make it easier to manage cash flow during the early stage of the project.
Third, private mortgage lenders for home construction loans tend to be more predictable with their draw advances in that the amount of funds that will be forthcoming to you to pay suppliers, trades, and contractors is going to be well known and predictable in terms of amount and timing.
With a bank or institutional lender, the draw management process can be much harder to predict as banks will have third party appraisers assessing the project’s completion prior to a draw advance, and if the assessor does not agree with your own declaration of work completed, the draw advance can be delayed or even cut back to provide the lender with greater comfort that the project is being completed properly, with sufficient funds available to cover off the remaining work.
If you are trying to arrange a home construction loan in Toronto or Southern Ontario and would like to better understand your private mortgage construction financing options, I suggest that you give me a call so I can quickly go over your requirements and provide home construction loan options for your immediate consideration.