The bank is hard on you and refuses to finance your construction project?? This one refuses to grant you a loan before the end of the work? Do not let your financial institution dictate the outcome of your housing project. While traditional banks are becoming more demanding of future builders, private lenders will be happy to make up for this lack of financing!
The reason banks are cautious about building loans is that there is no guarantee that your future home will be valued at the price you claim. Even if your file is supported by all relevant expertise, the granting of the loan is at the discretion of the bank! That’s why you should seriously consider the private loan option to fund your construction project! These lenders have their own approval criteria and your chances of seeing your vision come to fruition will increase!
What criteria for a construction project loan from a bank?
While each private lender sets its own loan approval conditions, banks have criteria that they must analyze before making their decision. Here is the list of financial data that should be in order if you hope to receive the construction loan you expect:
-Your credit rating: There is no point in saying it, but we will still do it; you have to have a good credit rating to be approved by the bank for a mortgage. Now that we’ve reiterated the financial world, what you really need to know is that your credit rating dictates the type of lender you can do business with.
In concrete terms, a credit rating between 680 and 900 will give you an excellent chance of being approved for a mortgage with an “A” lender because you will be considered a trustworthy debtor.
If your credit rating is between 600 and 680, you will still be able to do business with “A” lenders, but you will be subject to additional checks by your future mortgage creditor.
-The down payment: The down payment is a significant aspect of the mortgage approval. An amount equal to 5% of the value of the property is required by law as a down payment. The value of this sum of money will dictate the amount of the loan to which you will be entitled. Depending on your financial history, it could also affect your chances of being approved.
-The debt ratio: This ration refers to your ability to pay the amounts due to the mortgagee each month by calculating your monthly income, your expenses as well as any debts you may have.
-Profit of income and employment: Stability and consistency are the two elements that the bank holds firm. For this reason, it requires proof of your job stability and proof of sufficient income over a period of time considered to be quite lengthy.
-List of assets: We are talking here about all your assets having a monetary value that are in your patrimony. This is for the bank, to make a list of all your property seizable and likely to be put in guarantee on a loan.
It is not difficult to see that the bank is extremely demanding when it comes to granting a mortgage loan. Her standards are high and she does not drop them for anyone.
If you think that you are not able to meet these strong requirements and do not want to abandon your construction project, read on and find out what a private mortgage can do to help you achieve your ambitions!
The advantage of a private mortgage?
The number one advantage of the private mortgage loan is its accessibility. Whether you have been struggling financially in the past or unable to obtain the necessary financing from the bank, the private loan could very well be the solution to your problem!
Depending on your needs and your financial situation, you will be able to borrow between $ 30,000 and $ 1 million to finance your construction project. This loan will take the form of a first mortgage with progressive disbursements. This will be your main mortgage on your future home and it is this lender who will have priority against you in case of mortgage appeal.
The interest rates for such a mortgage are quite competitive and are around 10%, with up to 75% financing of the value of the future property.
Some lenders even agree to return the principal at the end of the term, allowing you to pay only interest on a monthly basis. This gives you great financial freedom and allows you to make other projects that you have planned!
Getting a loan for a construction project from the bank is even more difficult than a conventional mortgage. The criteria are demanding and your presentation must be solid. Many are called, but few will be elected. This is why the private loan becomes very interesting: to each lender its criteria.
As long as your lender is assured that you have the ability to repay your loan, you will have an excellent chance of being approved. The quality of your credit report and your financial history will only dictate the terms of the loan as well as the interest rate so you will benefit.
Private sector lenders can also offer you to take some of your assets as collateral to make sure they are at minimal risk by lending you money.
So let the banks dictate your real estate future and start work quickly by taking out a mortgage for a first-class construction project with a private lender referred by Bye Bye les Dettes!
The steps to take before the first shovel!
Regardless of the type of financing you choose, whether from the private sector or a financial institution, there are a series of steps that must be taken to make your project a reality. This is especially true if your project is one of self-construction, something for the least demanding.
First, you will have to draw plans for your future home and get quotes from specialists. Both documents must comply with construction standards.
Subsequently, you will need to obtain a building permit from the municipality authorizing the work to proceed. This permit will then be communicated to the Régie du bâtiment du Québec, the Commission de la construction du Québec and Revenu Québec.
You will also need to estimate the project costs , whether they relate directly to the work or simply to the project. It is also strongly advised to use available expertise to come to an accurate estimate of the cost of the work. You will also have to take out insurance against damage, accidents or force majeure.
The game gets complicated when you get funding for your project! As explained above, getting your hands on the funds needed to complete a construction project is not always easy. It can be very interesting for you to finance your project with a private loan if the bank is not able to grant you a loan.
The next step is to develop a schedule with a detailed project schedule, inspection dates and delivery times for each part of the project.
The last crucial step is the ratification of contracts with all the contractors you have hired, from the frame to the finish. It is essential to provide a date of completion of the work for each subcontractor.
Tips for doing a self-build project!
Building your home according to your own tastes is a dream that many share. However, do not fall too quickly into sentimentality! To avoid turning your dream into a real financial scourge, here are some tips you should consider.
Regarding the terrain; the value of this should not exceed 30% of the total cost of construction. It is also important to buy land that is close to the essential services of a home, such as the aqueduct, electricity and daily services. A distant land may be cheaper to buy, but be certain that accommodating it to modern life will rob your savings in smoke in time to say it!
Expertise, it’s expensive! That is why you should not be satisfied with estimating the services of the workers working directly on the site, but those of the indispensable experts too! This is often an aspect of the cost of the works that is greatly underestimated in the field of self-construction. You should therefore obtain estimates for the expertise of the notary, the surveyor in charge of the certificate of location and the service installation fees!
Insurance is essential! An active construction site involves many risks and that is why you must protect yourself against unexpected events during the works. There are also covers protecting you against vandalism and theft, which in urban areas is a prudent option! Fire insurance is also a service you should not miss!
Contact your municipality! Not all municipalities have the same bureaucratic efficiency or municipal by-laws! It is therefore important to get ahead of time in your requests, because their approval is necessary to undertake the work!
Put it all in writing! The world of construction is strong on verbal agreements, but do not be dragged into such a lack of formality, it’s your wallet that will want you! Require each subcontractor to sign a contract that includes the nature of the service they offer, the price for which they perform the work, and the date of service delivery.
Realizing a construction project is a process that is done step by step. We must take the time to hire the right experts to carry out each of them in accordance with the law and bylaws.
How do the progressive disbursements for a construction loan work?
A self-build project is almost always trusted by progressive disbursements. This is a way for the bank to protect itself as a creditor by preventing a legal mortgage from being registered and for you to continue the progress of your work.
These disbursements imply that sums will be paid at different stages of the work. These steps will have been decided well before the beginning of the works and also follow the frequency of the inspections of the works.
For example, a construction is usually inspected after waterproofing the foundations and laying the agricultural drain. It will be again after closing the roof and walls and once again after the completion of the exterior finish. The fourth inspection usually takes place at the very end of the project, when the work is finished.
It is after each of these stages that the funds will be paid. A residual background is also paid once all work is completed! We are talking here of a value of 15% retained at the beginning of the works.
Let Bye Bye Debts help you to realize your vision!
The bank is not the only way to complete your project, far from it! As we have explained, private lenders are working to fill the banks’ gaps in access to financing! Their eligibility criteria are flexible and they will accommodate you without any worries!
If you are convinced that private mortgage financing is the solution to your financing problems, contact Bye Bye Debts through the form at the bottom of the page. You will be quickly put in touch with lenders expecting nothing better than to finance your construction project!