Building and construction finance is typically harder to obtain than finance just to purchase a completed home.
There’s obviously more risks there for a lender because costs can escalate, blowout, or there can be issues along the way with the construction, therefore, there’s a lot more questions asked. And the criteria through a main bank is a lot harder to satisfy than it is if you were to fund this type of transaction through an alternative non-bank or private lender.
Generally, a construction loan (also referred to as construction finance) is advanced on the basis of progress. So, if you poured your concrete slab for your home, the lender might advance the cost of that slab for you to pay the subcontractor. Then you have your frames up and the lender would review the building, see the progress and advance enough money to pay for the frames. And then on it goes with roof on and advances made, closed in and advances made, and in the internal finishing, of course, and landscaping.
So, it’s generally a situation where money’s advanced progressively during the course of the construction. The lender would generally require that someone borrowing for that purpose had a reasonable deposit up front, perhaps along the lines of 60 to 70% of the section cost. And then they would have the ability to advance to cover the cost of the building. It is a little harder to obtain.
And again, alternatively, outside of the main banks, the private lenders, non-bank lenders can make that process a little more flexible. And then we would typically get the finished product and then look to secure cheaper funding through a main bank mortgage.