The Construction Loan
Applying for a construction loan is much more complicated than the average mortgage loan. Here are the most common questions that people have when I speak with them and the answers to those questions:
- HOW MUCH? RATE and FEES: Rate and fees are relative to the lender. If the lender is institutional they will likely charge a lender fee of minimum 1-2%. A private lender will charge minimum of 2%. Rates with the institutional lender will be prime + 2-5% if the loan is in first position and they won’t go behind another institutional lender in 2nd position unless they are the lender in first position. A private lender will charge 8-15% interest only and they will go behind a bank but generally not a private lender. A 2nd mortgage rate will start at 10%.
- MORTGAGE PAYMENTS: Construction loans are interest accrual. That means that you don’t make monthly payments, the interest is calculated and deducted from the construction draws.
- HOW MUCH CAN I BORROW FOR CONSTRUCTION?: You can generally borrow up to 100% conditionally. That means it will depend on your current net worth. If your net worth is weak but you have a good location, we can be very accommodating. Location is very important.
- HOW DO WE GET STARTED? I will be able to tell you on your first phone call if your going to qualify or not. I will then start the process with an application so I can prepare an Executive Summary for the lender. We don’t need much to get started, if the lender wants the loan we will condition what we need to get to the fully signed commitment.
- DO I HAVE TO GIVE A BIG DEPOSIT?: NO!! But we do generally ask for enough deposit to cover legal fees if you change your mind and the lawyer has worked on the deal. Generally about $1,000.00 to cover legal fees. The deposit is applied to legal fees of the lawyers.
WE WILL NEED THE FOLLOWING INFORMATION BEFORE CONSTRUCTION DRAWS ARE RELEASED TO THE PROJECT:
- Building Permit
- Appraisals (sometimes not necessary)
- Stamped Drawings
- Mortgage Application and credit bureau before closing
- Hard cost construction budget and approved draw requests (to be negotiated and inserted into the commitment).
- Builder All Risk Insurance policy
- Site Inspection
- Resume from the builder
- Contract with the General Contractor (GC) and GC to be approved by the lendeHilchuk, Principal Broker – Licence # 11962
Jacqueline Hilchuk is the Principal Broker of Record License # M08005134 with I Finance Construction – Corporate Licence # 11296, specializing in construction financing and private mortgages with 25 years experience in custom home building, general contracting and many many contacts with private lenders and General Contractors. Jacqueline Hilchuk is also a founding partner in Construction Services since 1988 in the GTA, specializing in After Sales Service, Project Management and General Contracting.
My Commitment to You:
Honesty, Integrity and Experience to help you achieve the most from your project!