Infill construction financing

We are experts in working with our clients to ensure their infill construction financing is approved quickly, with excellent rates and terms, and allows them the flexibility to complete their project on time and on budget. We have included below some information about this type of mortgage financing along with several options that we pursue with our clients and the typical cost and structure for this type of funding.

Infill financing options:

There are three avenues that we usually work with clients to obtain financing through:

*Residential mortgage funding – this is an option where a client is considering building a home for themselves via an infill construction or when they are building two attached homes, selling one and keeping the other as their own home.  The advantage to proceeding with this type of funding is that it is the lowest cost funding available and we are able to facilitate it through several major banks and lenders.  The disadvantage is that these funds are the most restrictive in terms of a draw schedule and also our client has to be able to personally qualify for the entire funding amount.  For example if a client is building two attached homes and requires $850 000 in financing to complete them, that client has to be able to qualify for an $850 000 mortgage based upon their personal income and credit.

*Bank based Commercial mortgage funding – this is an option for our clients who have an already established home building business that has been in existence for several years, they also completed several projects successfully, and have strong company financials.  This is probably the lease common type of funding that we complete within this lending category as the lender requirements can be quite rigid.

*Specialized infill construction financing – this is the type of funding that tends to fit most clients – ranging from experienced builders to first and second time investors.  We source these funds from about half a dozen major Canadian mortgage funds that specialize in infill construction financing.  These funds tend to be the most flexible in terms of borrower qualification and also the number and amount of draws our clients are able to receive.  The only reason why we look toward the other options as well is that these are also the highest cost construction funds.  We have included additional details below:

Specialized infill construction financing details:

*These funds are more focussed on the strength of the project rather than the overall strength of our client.  Our client’s strength does factor into the overall loan to cost and pricing however we look first at the project.  This is great news for clients who do not fit the first two funding options that we discussed above.

*The first thing that we want to ensure when we look at a project with our funders is that we want to ensure our client is going to be profitable.  The reason for this is two fold, first of all we want our clients to be successful, secondly from a lending perspective we know that if our clients are going to make money that they will do their best to finish the project on time and on budget.  This ensures the lender of a strong exit strategy as well.

*Loan to cost – we typically like to see client’s loan to cost in the 60% to 80% range depending upon the strength of the project and client.

*Number of draws – we have funding options where you are able to have an unlimited amount of draws to help you most effectively manage your cash flow.  These draws are often managed by coordinating with our appraiser and funder, there is often a small draw fee charged by the funder so we want to ensure we work toward a balance of timing and of accessing funds.

*Pricing –  the typical pricing for these funds is in the net 11% to 12% range, with this divided into an interest rate of ~8% to 9% and lender fees of ~2.5% to 3.5%.  This might seem a bit high however it is important to understand that you are only paying for the funds advanced and that you are only using these funds for a relatively short period of time.  For example if we have a nine month build time and an $850 000 funding approved, due to it being construction draw funding you will only have the $850 000 drawn at the very end.  For example, your first draw might be $200 000, followed by subsequent draws of $200 000, $60 000, $150 000, and $240 000.

We are experts in working with our clients to meet their infill construction financing needs.  Please feel free to contact us via phone or online contact form and we would be happy to discuss your project and options with you.