And the main reason borrowers turn to private money construction financing is the flexibility and predictability that comes with it.
Compared to a bank or institutional construction loan, construction financing through a private lender, on average is faster to get approved and the the draw management process easier to manage and rely upon.
There are also situations where individuals do not quite qualify under the stringent requirements of a bank or institutional construction mortgage applicant and are resigned to take the next best option, which in most cases is a private money construction loan.
The cost of private money is going to be higher than what you will pay at a bank or institutional lender, but the added cost does come with the added benefits of greater speed and reliability mentioned above.
To further expand on reliability, the hardest part of managing the cash flow of a construction project is knowing exactly when a draw advance will be received and how much will be received. Its not uncommon with bank and institutional lenders for the construction draws to be delayed and the draw amounts reduced to provided greater comfort to the lender that there will be sufficient funds available to complete the project. This level of draw advance uncertainty is largely removed with a private money construction loan where the process for assessing and advancing draws tends to be less rigid and more timely.
Another key element of a private money construction loan is the potential willingness of the private lender to go in a second position on the property when taking security.
A bank or institutional lender will rarely allow a second position construction loan, insisting on first mortgage financing only. When second mortgage financing would be preferred for a given project, then private money construction financing can be the logical choice.
The key to locating, securing, and administering a private money construction loan is working with an experienced construction private mortgage broker who has the private lending sources as well as the expertise to guide you through the process and help quickly solve any issues that may arise during the period in which the construction loan is outstanding.
If you require a private money construction loan for a project you are planning, or are in the middle of, I suggest that you give me a call so we can quickly go over your requirements and discuss relevant private money construction options available to you in the market place.