Construction financing is a short term mortgage that is utilized to finance the construction of a real estate project. This gives you the ability to build your own home from the ground up, from selecting a plot of land, designing the home, and the eventual construction of the home itself.
If you are looking for construction financing in Ontario, here is everything you need to know to get approved.
Application Process For Construction Financing
Construction loans can help you purchase equipment and materials, expand your company’s facility, hire and train employees, and overcome damage or disaster expenses. However, while they are very useful, it is also hard to qualify for construction financing in Ontario.
Most lenders consider construction loans risky because the asset to secure the loan isn’t built yet.
To get construction financing in Ontario borrowers need to provide a down payment. The amount varies by the type of loan and lender but is usually 20% of the total project cost or more. This means the borrower will need to have funds of their own to ensure they can handle paying back the loan. The particular amount of your down payment will depend on the cost of your project, the land, and what you plan to do with the funds.
To ensure you can provide a proper down payment, you also need to provide your credit report and credit score. Lenders will also analyze your debt-to-income ratio, employment status, as well as any other loans or liens you may have on your property.
Lenders also examine parties involved in the construction, such as the builder. If you are working with a builder, they should not hesitate to provide evidence of their good reputation, along with the detailed project plans and cost estimates you’ll also need. A reputable local builder with a track record of completed projects will have an easier time obtaining construction financing approval in Ontario
It is also very important to get a good appraisal to improve your chances of getting a construction loan approved. You can get an independent appraisal if you want, but your lender will most likely insist on conducting their own.
Once the lender is satisfied with your information, you will sign the contract and receive the funds you need.