Whether you have a project building apartments or residential housing, all builders know that these projects take time, effort, and most of all – money. No matter the size or requirements of the project, it won’t be cheap, and sometimes getting a conventional loan from a bank just isn’t in the cards. Construction loans, however, could just be your financial saving grace, and when looking into these types of loans, it helps to know what to expect.
The first step you’ll take is seeking out a lender who specializes in construction loan. A local lender will typically be better than a lender from farther away due to their familiarity with the area – the local market and the trends considering renting and home purchasing – and with that knowledge they can help you make the best decision in regards to the lending process. Loans for brand new construction projects carry a high degree of risk, so choosing a lender who is familiar with the market will help you not only push through the process quickly and with ease, but will also ensure you have a decent chance of getting the loan you need for your project.
Once you’ve found a lender you trust, they will then begin the review and underwriting process with you. You will need to provide them with details for the project, including:
- Building specs;
- Value of the land;
- Plans for the land post-construction;
- Background of the project developers of your choosing.
Assuming they choose to move forward, they will them provide you with a non-binding sheet of terms to look over. This will outline the terms and conditions proposed for the deal, and at this point, you can usually negotiate with the lender to compromise on a deal that fits the needs of both parties. Once an agreement is met, the underwriting stage begins.
Something that should be discussed early on in the process is the time frame in which the lender expects approval. You can get this information by simply asking how long it might take for them to issue a letter of commitment if they don’t offer it directly, and this will give you an idea of how the approval process will go. It is also typically in your best interest to have an attorney look over all documentation and agreements to make sure everything is being handled appropriately, and they can also provide insight into any aspects of the deal which you may not fully understand.
At the end of the process comes the closing process. Once a letter of commitment has been issued, the bank’s attorney will provide a closing checklist outlining documentation you need to provide, such as a title search of the property, UCC filing, and judgement lien. They will provide the loan agreement setting forth the conditions for funding, as well as additional conditions over the course of the project term, and you’re all set to build.