Construction Mortgages - Underwriting Fundamentals 101

Construction Mortgages

All right, guys, you're going to get a lot of questions on this one, because buyers nowadays, more people are wanting to build than ever before.

In some cases, building can be cheaper depending on the builder products used, even assets like a manufactured home.

Those loans are being, you know, quite reasonably priced.

So anyways, lots of people are wanting the construction mortgages now more than ever.

So it's super important to know how the draws go.

So traditionally a bank or a major credit union or that type of lender, they're going to set this up in between 3 to 4 progress draws.

So that means let's break this down into easy numbers. Let's say the lender's going to do for progress draws they generally find upon completion.

So once it's 25% complete, they find 50% completely fund rate. And they do this until the whole thing's done.

And then you pick your regular mortgage that may or may not work for your project because you need to have a large asset base behind you in cash to carry the renovations while you wait for this funding to happen.

Now, we do have other alternative lenders.

Their rates are a little bit higher and there are some fees there as well.

However, they can do unlimited progress just so they can fund this weekly for your project if the you need draws that frequently.

Again, the more draws and you take, the more money. Of course, you don't want to go crazy here.

But the point I'm trying to make is there's different solutions.

So if you cannot afford to build the home based on the bank's criteria, we have other options to look at so they can build and move forward.

Now, some of the other alternative options to construction mortgages will also help you to buy the land where there's only one lender that I'm aware of in Ontario that will and that's a major, you know, credit union that will allow you to buy land and get a mortgage on it.

Otherwise, it's like cash or it's, you know, a private mortgage.

So you have to be very careful and look at the whole picture when you're analyzing and suggesting, you know, products might.

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How a construction mortgage may benefit your clients.

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