Construction Mortgages
Obtaining the appropriate construction mortgage to suit your project’s needs can present some complicated financial challenges. By engaging with our team of construction mortgage experts early in the planning process, we will develop an expansive and effective plan with optimal leverage, terms and repayment flexibility at its core.
Our team of Impact Commercial brokers will prepare you for a successful project from start to completion, guiding you through the process and explaining the funding process over the course of the development.
Impact Commercial has worked with complex construction mortgage files including financing single-family homes, small fourplex projects, large townhome communities, and five-storey apartment buildings — a testament to our wide-ranging knowledge and expertise.
What is Construction Financing?
Construction funding is often sought for a multitude of construction projects or needs. During construction, typically only the interest of the mortgage is paid, then upon completion, the higher rate construction mortgage is either paid out from sale proceeds or transferred to a conventional term mortgage. The benefit of only paying interest during the project allows you to minimize costs during the project allowing you to focus on investing the necessary funds to get the project expediently completed. Construction mortgages are commonly referred to as Progress Draw mortgages.
- Progress Draw Construction Loan: Where the lending institution only provides funds as construction progresses. There can be multiple draws, generally from three-to-five on smaller projects and more with larger developments. Each project has it’s own construction schedule and most lenders are proficient at tailoring a draw schedule to meet our client’s needs. Usually this type of loan involves an appraiser and/or quantity surveyor who submits a report to the lender and verifies when each stage is complete so the next stage can begin with the new money draw.
Construction mortgage financing is fairly high risk; therefore, lenders typically have higher interest rates than traditional mortgage loans. Most lending institutions require a more significant down payment or equity contribution due to the associated risk and overall uncertainties in the construction period. The down payment must cover the cost of the property (if applicable) and reach the first draw of funds. If funds for the project run dry before the project is halfway complete, the lender will refuse to finance the new construction mortgage and the builder will have to cover the costs. If funds run out at any other time during the process, the lender has the right to foreclose on the project — hence, why planning the best stages for money draws with an experienced specialist is so significant.
From major renovations of your home or a new build, to developing a property for resale or a major land development and high-rise construction project, the diversity of construction financing options varies greatly. Impact Commercial Group understands what you’re looking for in a loan, the extent of your project and your end vision.
Keys to Qualifying
To qualify for a construction loan, Impact Commercial Group will help you set up an application to present to the financing institutions, which will include the following details:
- Full financial information of the developer
- Detailed project budget and site plans
- A signed construction or purchase contract with a builder or developer. The details of this contract will impact the financing options available and specifically concentrate on:
- Contract amount including construction and land costs
- Timeline for the construction project from start to completion
- Plus many more
Construction mortgages can be overwhelming, however, Impact Commercial Group will walk you through the steps and best advise you during the process. Understanding the balance of fund management and timing should be carefully calculated prior to any applications being submitted or considered. The impact of funds being delayed based on construction mortgage timeline terms could greatly impact the cash flow and thus impact timely payments to contractors or builders. Furthermore, it may impede how the required supplies are obtained, access to necessary service providers, and set back the timeline for the entire project.
Working with our network of traditional financing resources, as well as a variety of private lenders, Impact Commercial Group looks to match you with the best lending institution to suit your unique project requirements.
Get started today! Contact us to set up your consultation: 604-674-9404.
