Whether you’re wanting to build apartments or residential housing, building homes takes a lot of time, effort, and most importantly – money. It isn’t cheap, no matter your property building needs, and sometimes getting a conventional loan from the bank just isn’t the best option. Getting a construction loan may be the best option for you, and it’s helpful to know what to expect when seeking a lending company to make a deal with.
The first thing you’ll want to do is seek out a lender who specializes in construction loans. If you can, seek out a local lender rather than one farther away, which will ensure the lender is familiar with the local market and can help you make the best decision when it comes to the lending process. New construction loans carry a high degree of risk, so choosing a lender who knows the market will help you push through the loan process faster, and ensure you have a decent chance of getting a construction loan based on your project.
Once you’ve found a lender you trust, they will begin the review and underwriting process. They will need details of the project, such as building specifications, the value of the land you’re building on, the plans you have for the lot post-construction, and the background of your chosen project developers. If they choose to move forward, they will provide you with a non-binding term sheet to look over which will outline the terms and conditions they are proposing for the deal; at this point, you can typically negotiate with the lender to get a deal that fits the needs of both parties, and once you’ve come to an agreement, the underwriting state begins.
You’ll want to make sure you fully understand the time frame in which the lender requires for approval, and these details should be discussed early in the process. Simply asking how long it might take for them to issue a letter of commitment is a great way to get this information from them if they don’t offer it directly, and will give you an idea of what to expect when going through the approval process. During this process, it is often in your best interest to have an attorney look over all documentation and agreements to ensure everything is being handled properly, and to provide insight into requirements that you may not fully understand.
The final process is closing the deal, and once the commitment letter has been issued, the bank’s attorney will provide a closing checklist that outlines that you need to provide, such as a title search of the property, UCC filing and judgement lien. They will provide the loan agreement which will set forth the conditions for funding, and will outline all additional conditions over the course of the project term.