Construction projects and creative financing

For a second time this month we provided some guidance for construction projects that are multi-phased and require creativity. Most lenders today do not want to provide construction financing for projects that are not completely pre-sold. Lenders want to know that the money they put out is covered off by sales that can repay the loan. The challenge for borrowers is that in order to pre-sell a project prior to construction the sale price ends up being less than what they want and is not as profitable as selling after the project is completed (or started). Borrower’s today believe that if they build first and sell later that they will maximize their profit. Lender’s today want them to sell first and build later resulting in potentially less profit. The creativity is required to find a point in a project where a borrower is satisfied that they can move forward without compromising profit and and lender is satisfied that they are not going to be short on equity once the project is built.

If you have questions about your construction financing or construction mortgage need, please email or visit

How do residential mortgage brokers get paid?

We get asked this question a lot so I thought it would be a good idea to share the answer with everyone. For residential mortgages typically brokers are paid by banks and lenders. The longer the term you choose the more money a broker earns. A one year mortgage might pay a broker up to 0.50% of the financing amount whereas a five year mortgage might pay a broker as much as 1.10% of the financing amount. Not every bank pays the same amount and some pay more than others. As well, most banks and lenders will allow a mortgage broker to use a portion of their commission in exchange for providing a client with a lower rate (called a buy-down). Some banks allow brokers to earn points towards vacations, office equipment and other non-cash rewards. As a borrower it is important to know how your mortgage broker is compensated to ensure that you are getting the mortgage that best matches your needs. It is a very competitive marketplace with many brokers competing for your business so don’t be scared to ask how your broker is getting paid.

On a side note, private mortgages do not follow the same compensation formula and can vary widely from broker to broker. For private mortgages the lender will charge a fee and a broker will either charge a separate fee or share in the lender fee. These fees can be as low as 1.0% of the financing amount and have no limit.

If you have questions about your mortgage or how your broker is being compensated, please email or visit

CASE STUDY: Business turns a corner and needs more cash

A business approached us that has just come out of two years of very difficult times but seems to have turned a corner for the better. Going into 2008 they had plenty of capital and then used that capital to pay expenses for 2008 and most of 2009. Near the end of 2009 business began to pick up and it appears that they know have over 6 months of strong cash flow and future business prospects. They own their building and have a mortgage that is less than 60% of what the property is worth. Because of the way in which their financial statements present 2008 and 2009, the bank that holds the mortgage has become very difficult to deal with and they are looking for us to help them payout the mortgage and get them a new one. At the same time, one of the principals of the business is looking to have money he put into the business paid out which would be added to the new mortgage amount.

If you would like some feedback or comments on your situation, please email or visit

CASE STUDY: A Church and a Vendor Mortgage

Recently we were approached by a church (not for profit organization) that purchased a small commercial property but at the time did not have the financial history to approve for a conventional commercial mortgage. As a result, they gave their down payment to the vendor and the vendor agreed to give them a mortgage at a slightly higher interest for three years. They felt at the time that leasing space would be more expensive than owning space and making a mortgage payment so they completed their transaction with the vendor. They now have approached us through their commercial real estate agent looking to payout the mortgage provided by the Vendor given the current interest rate environment. With their financial statements up to date we will be working to get them a new mortgage at lower interest rates and help them own their space at a lesser cost than what they have paid previously. Their financial statements prove that they have made the payments historically at a higher interest rate which helps a bank feel comfortable that at a lower interest rate they would be able to make the new mortgage payments easily. If you would like us to provide you with some options, please email or visit

5 questions every bank asks

Whether you are looking to borrow money for a residential mortgage, a commercial mortgage or business loan you should be aware of the 5 most important points a bank or lender will look for in determining your approval.

1. Character – Do you make your payments on time?
2. Capacity – Do you have money to make the payments?
3. Capital – Do you have financial stability and net worth?
4. Collateral – Do you have an asset that can be used to as security for the loan?
5. Conditions – Other items related to your request like location, property type, etc.

Your answers affect your interest rate, the amount a bank will lend you and how much (if any) they will charge you as a fee. A mortgage broker can help you put together your 5 answers and can also explain them to a bank on your behalf. If you want to know how you strong your 5 answers are, please email us at or visit

Why does my credit score matter?

There is a lot of advertising and information available about your personal credit score but most people are not aware of the impact their credit score can have on their borrowing. The lowest mortgage rates are available to individuals with high credit scores and if you do not have a high score you may end up having to pay a higher interest rate for your mortgage. There are many private lenders in the marketplace that will charge as much as 5-10% more than a bank for lending money to someone who does not have a high credit score. Banks have specific products available for individuals that have high scores and also change their lending criteria for these individuals. A borrower with a 700+ credit score could borrow more money than a borrower with a score of 699 or less. Your credit score is very important and if you would like more information about how it could impact you – email me at or visit

Owner Occupied vs. Investment Properties

Often times our clients will ask about the kinds of transactions that banks are interested in funding. For the past year banks and lenders have been very competitive to fund mortgages for owner occupied properties over investment properties. An Owner Occupied property refers to real estate that is purchased by the same individual or business that intends on occupying it. Locally, we have many businesses that have leases expiring and have considered changing their monthly lease payment into a mortgage payment. There are many properties to choose from and in a lot of cases a business that purchases a property can save money compared to leasing the same type and size of property. For this reason, banks and lenders are interested in working with these types of transactions as they present opportunities to lend money to solid businesses that have demonstrated cash flow and financial stability. Compared to Investment Properties, which would be real estate that is purchased for investment purposes and not occupancy purposes, banks and lenders are still interested in seeing the transaction but we have experienced slower turn around times and a lower level of interest compared to Owner Occupied properties. If you are considering turning your lease payment into a mortgage payment, send me an email at or visit and I would be happy to run some math.