Construction Mortgage Programs Available
Bank Mortgage
-Bank mortgages are available for clients looking to build their principal residence.
-You need to be able to debt service the mortgage
-You will have a fixed draw schedule
-Depending on the size and scope of the build cover the costs of project monitor
-Potential for interest only payment during construction
-Funds not available for speculative build
-Benefit is low cost compared to private capital but the negative is flexibility and fixed draws. Client require substantial cash reserves and liquidity to supplement the Bank Construction Mortgage and only for principal builds.
Credit Union Mortgage
-Credit Union mortgages are available for clients looking to build their principal residence
-You need to be able to debt service the mortgage
-Pending the CU, the big advantage is the draw schedule. Instead of a fixed draw schedule you can obtain multiple draws on a cost to complete basis
-Interest only payment during construction
-Funds typically not available for speculative build
-Benefit is low cost and more flexible draws but the negative is mortgage size can be capped, client has to debt service, geographical restrictions and not available for speculative builds.
Private Capital Mortgage
-Private Capital Mortgage are available to build your principal residence or your speculative build.
-Do not require traditional income to debt service the loan
-Approval based on strength of asset, acquisition cost, budget and end value
-Flexible capital for acquisition and for construction
-Unlimited draws on a cost to complete basis
-Interest only payment during construction OR interest reserve available so no payments during construction
-If being used for principal residence can be paid of with institutional capital at 97% complete - everything but driveway and landscaping.
-Most flexible product available for principal residence and speculative builds. Access to capital is quick and allows builds to go fast as draw schedule from builder can easily be met. The negative is the cost of capital is higher than both bank and credit union capital.
Hybrid of Institutional Capital & Private Capital
-For clients with a small mortgage relative to the home value or a free and clear property.
-If client can obtain institutional capital, ideally in line of credit in 1st position, we provide private capital in 2nd position for a portion of construction.
-Client avoids construction process with bank or credit union and uses a line of credit to manage the construction and early stags on their own. the first 80-90% of the capital will come from their line of credit. The remaining 10-20% will be held as a reserve to support any overages or contingencies.
-The private credit facility is used during construction to help finish the build
-The average cost of capital is brought down with combination of traditional capital and private capital and the flexibility is increased.