From Jerome Trail – at Toronto’s The Mortgage Trail
Once the City of Toronto announced that laneway suites were legal, the financing of these new projects started to take shape. If you are one of the lucky few to be able to pay for construction, out-of-pocket, you would have no idea the hurdles and obstacles involved in construction financing. This is dry reading but paramount in most situations and decision-making.
How does construction financing work? Institutions will normally provide cash advances, on an approved basis, after inspection reports are provided by third party appraisers after the project hits certain construction thresholds. This process, most often, is inefficient and costly and the most timely method is to usually look at a non-institutional solution that can provide the funds both timely (to keep trades happy) and the project on-track. Upon completion of the overall project, the property is appraised and refinanced to pay off the short-term financing that was incurred to get the project done. Short-term financing is usually priced at a premium and the refinanced mortgage puts the costs back in-line with normal interest costs.
How does this differ in a Laneway construction project? There are several nuances that need to be considered and you should be asking yourself the following questions:
- Will your Lender accept the increased value of the laneway house in the overall valuation of the property? Most often an Appraisal is only allowed to include the principal residence and no outbuildings.
- How will your Lender view the s118 that the city has registered against the property? The s118 is the Deferral Agreement provided by the City of Toronto providing the homeowner the chance to avoid the Development Charges (normally a charge in excess of $40,000). The Lender, as your partner in the property, is not normally interested in being in second position to any other institution.
- What is the current value of the property and what impact will the increased financing have on the loan-to-value both short and long term? Do you have the ability to borrow against the current value of the property, today, and avoid these hassles later on?
The best advice that we could provide to prospective laneway homeowners, when it comes to financing, is to do your homework and have your solution lined up well in advance. The financing world is not completely in-sync with the City’s approved process and you ought to know that before making any commitments. We have successfully maneuvered the laneway financing process. We know what Lenders require and how to make this happen. Please let us know if you would like to work together.
- Jerome Trail is the owner of Toronto’s The Mortgage Trail
The Mortgage Trail Inc.
2040 Danforth Avenue
Toronto, ON M4C 1J6
Brokerage #13052
Phone: 416-855-3186
Fax: 647-245-3020
Jerome Trail
Phone: 647-523-8202