Whether you’re building commercial or residential homes to put on the market, you’ll eventually need to obtain a loan to help with the finances of the project. It may be because you aren’t able to pay the construction fees up front, or you’re having difficulty getting a loan due to the fact that you’re asking the bank to fund something that doesn’t yet exist. No matter the snag, a construction loan may be the best route for you.
What Is A Construction Loan?
A construction loan is a short term loan provided for the purpose of financing the costs of building a home. They are typically offered for a set term of 12 months, and interest rates on these loans vary from 12-13%, with all points rolled into the loan.
How Do I Qualify?
In order to qualify for a construction loan through Hard Money Lending NLDS, there are a few areas of criteria you have to meet. This is because, as the lenders, we tend to be wary of circumstances which can cause the project to go awry during or after the construction process. That being said, the following standards should be met:
- The home value has been estimated by an appraiser, including the blue books, house specs, and value of the land upon which it will be built;
- A qualified build with an established reputation for quality home builds is involved;
- Detailed specifications are provided, including floor plans, building material details, etc.;
- A down payment is made, typically of around 20% minimum, ensuring that you are invested in the project and unable to walk away from the deal if something goes awry.
How Do Construction Loans Work?
Assuming you are approved for your loan, we begin paying out the money agreed upon by all parties involved. Unlike a traditional loan, a schedule of draws will be set, which are designed intervals for the builder to receive in order to continue funding the project. The number and amount of these draws will be negotiated with all parties involved before approval of the loan, and once the home is built, the buyer will then need to get the end loan to pay off the construction loan.
Is There Interest?
Yes; as with all other loans, you will pay interest on the money you borrow for the construction loan. The rates can be set up as either variable rate loans or interest only loans. The latter means that you will only pay interest on the money borrowed, rather than paying part of the principle loan balance up front. Like all other aspects of the loan, this can be discussed during the loan process to ensure you pick the option that best fits you and your project needs.