Depending on who is actually applying for the construction mortgage, the requirements by the construction lenders can be slightly different.
For instance, a builder or developer is likely going to need to have home builder insurance in order to secure financing while an individual building their own home will not.
As an individual property owner that is expecting to live in the home once its completed, the property owner can be acting as the general contractor or a project manager for the project. Regardless of how the individual plans to go about the process of construction, it will be important to the lender that there is a clear plan prepared prior to applying for financing and that all contracts, costing estimates, and regulatory requirements such as permits and licenses are in place.
For a Toronto home construction loan from a bank or institutional lender, the property typically needs to be free and clear of any encumbrances in order to make the financing work. To be more specific, most bank construction loans require first mortgage position against the property and in very rare cases will they be prepared to work in a second position, and then only if the first position is for a very small amount.
Another aspect of securing a Toronto home construction loan from a bank is that in almost all cases the bank or institutional lender will require that you also apply for the take out mortgage that will pay out the construction loan when the work is completed.
Banks, for the most part, are not interested in just providing a Toronto home construction loan by itself. The value of providing the construction financing in the first place is to be able to secure the more lucrative long term residential home mortgage.
While there is nothing wrong with having the construction mortgage and take out mortgage at the same lender, it does increase the amount of up front work required at the outset to get financing in place and it further limits your ability to look at what the market may have to offer in terms of long term mortgage options.
Where cost of financing isn’t the primary concern of the borrower, private mortgage financing has become a very poplar type of Toronto home construction loan.
While private construction financing does come at a higher potential cost of financing, it does provide a number of benefits such as considering second mortgage financing security, a faster application and approval process, and more streamlined and predictable draw process, and the lack of the need for the take out mortgage to be approved prior to construction in most cases.
If you need to secure a Toronto home construction loan or are just planning ahead, give us a call so we can go through you situation with you and provide relevant construction financing options for your consideration.