Interested in construction financing but got turned down by the bank?
Construction loans are hard to qualify at a bank and even if you do, sometimes they don’t give you enough money. This is why lot of constructions are financed through alternative lending.
Construction loans are sometimes referred to as “draw loans” because the money is given out in draws and not all at the same time. Part of the reason for the draws is that with construction loans, the lender takes on additional risk. In a regular home equity loan if the borrower defaults, the lender can sell the home to recover his money. In a construction loan situation, if the borrower defaults, the lender might only have a partially constructed house on a lot. At this point, it is quite a mess to try to recover all the money.
By releasing the money in portions after a certain percentage of the project is complete, keeps the project on track and mitigate some of the risk associated with construction lending.
Because of this, alternative construction loans differ from home equity loans in that credit and income will still be part of the consideration. It will not be as strict as the banks but if you have terrible credit for example, it will be difficult to get even an alternative construction loan.
If you have enough equity in your properties, it might be possible to get a home equity loan and bypass the stricter guidelines of a construction loan.
Benefits of an alternative construction loan besides being easier to qualify for includes:
Higher loan amounts
Smaller upfront cash requirements
No need to pay interest payments during the construction
More flexible draws to assist in completing the project
A smoother and faster process at every corner
Alternative construction loans are generally more expensive. The lowest rate currently is prime + 4% in the city. As the project gets further from the city, the client’s resources are weaker or the marketability of the project is lower then average, then the rate will be increased accordingly.
The key is to be prepared. Get everything ready before you set up the loan. The faster you get the construction done, the faster you can sell your project or refinance into a traditional mortgage.
Construction financing is complicated. Give us a call and we’ll do our best to analysis your situation and give you a clear plan of what needs to be done. 604-831-4437
Alternative Lending.ca helps people who are having difficulties getting mortgage financing. We are experts in second mortgages, home equity loans, alternative construction loans and private lending. Though our office is in Vancouver, we can help individuals in all parts of BC and various locations in Alberta, Manitoba, Saskatchewan and Ontario. If you have any questions please call 604-831-4437 or contact us here.