7 Tips for Finding the Best Construction Loan Lenders
Are you considering doing some construction? Here are 7 tips you need to know on how to find the best construction loan lenders.
When you are looking for a home to live in or a large commercial property being built, you might consider taking on a large construction project loan.
And if you don’t have the entirety of the required sum to pay off construction, you will have to take a look at various construction lending options to assist you in making this dream – a reality.
However, how does one go about finding the best construction loan lenders?
Within the compounds of this article, we will answer the question and more. Keep reading to discover 7 tips for finding the best construction loan lenders, covering all angles of the process.
What Is a Construction Loan?
In general, a construction loan is a privately or federally issued financing option that helps you cover the costs of building a home or commercial property.
A home construction loan is most often a short-term solution, as a residential property takes significantly less time for completion, and does not have the risk involved as a commercial property would.
A commercial construction loan can extend for decades, and be fulfilled through various payment schemes, unlike a home construction loan.
In simple words, a construction loan is next of kin to a secure and definitive construction mortgage, that places your initial risk intent on building a property or having someone else do it for you.
And in most cases, a construction loan can be acquired without much barrier of entry, unlike a mortgage. As a new property will always be up to the newer standards of construction policy and property requirements, presenting the idea of long term integrity.
If you are looking for a loan to cover an old property, a bank or issuing party will consider you defaulting on the loan, as an older home would be difficult to sell, in order to secure the loan funds back.
But if you are looking to cover a new property, a bank has a better outlook at recovering funds, if you were to default. In addition to that, a new property retains its value for much longer than an older property, as it needs to be repaired.
In Some Cases, A Lien Must Be Placed
When claiming a new loan from the best construction loan lenders, you and the party will discuss with a builder, who will have to present a possible date of completion, stating the requirements.
In this case, a builder will have to hold a lien on the property, as you would be expected to contribute a sum on a monthly basis to cover the loan, even though you are not using this property. The sum is most often equal to the interest rate.
After the property has been finished, the builder and property manager can release the lien for construction and return it to the lending party. Meaning the builder takes any leftover moned owed to the issuing party and transferring the ownership to them.
At this point, you step in and issue/reuse a construction mortgage for a residential property or consider other construction loans to become the owner and remove the issuing party from the lienholders list.
Check out our most recent loan properties to get a feel for what a construction loan can cover.
What Are the Pros of Finding the Best Construction Loan Lenders?
A construction loan has many advantages over other financing options.
Considering that it is a large step into the unknown, no matter if you are getting a commercial or home construction loan, you have to take note of these pros before you take on the project.
You Can Customize the Property From the Ground Up
Acquiring a property construction loan provides you with an unrestricted opportunity to make any necessary or unnecessary changes to the interior and exterior of this property.
This means that you have full creative potential over the project, and your ideas are only limited by the capability of the builder.
At any time, you can request the builder to make any necessary adjustments to room layouts, building extrusions and much more.
You Can Begin Payments During Construction
During the construction process, you are required to pay an interest rate, previously agreed upon with the lender.
However, you are able to request the loaning party to extend the compounds of the contract to help contribute a sum to paying off the principal.
This allows you to build equity during construction, and help quickly pay off any remaining sums towards the end of the building process.
You Can Buy a Property That Has Never Been Used Before
As long as you make all of your payments on time and fulfill all of your contract requirements and obligations, you will be using your property from the get-go.
A new property will not require maintenance, will be sparkling clean and unlived in – fully built up to code.
This is significantly better over buying a property that has been previously built, as they can have unseen moldy segmentations, terrible insulator properties, and rotting beams.
There Are Plenty of Loan Options
Besides using a private institution to acquire your loans, such as a bank or financing firm – you were able to take advantage of federal loaning options.
You Can Expect Your Project to Be Completed Without Many Issues
During an economic crisis, many construction projects become incomplete, as the builders run out of funds and materials.
This happened during the housing bubble of 2008 and has had a tremendous impact on the industry guidelines.
These new guidelines have established stricter rules on unfinished projects, and can definitively improve the likelihood of your property being built by a builder.
If you have any other questions about construction loans – check out our Frequently Asked Questions.
What Are The Tips For Finding The Best Construction Loan Lenders?
As promised, now that we have covered all of the necessary information on construction loans – we can move on to the 7 tips that will help you find the best construction loan lenders for your next project.
1. Take your time and don’t fall for common traps.
If you are looking to take on a new construction project for a home, try searching for homes that are already being built. By looking for properties already in the process, this shows that the builder is financially stable during that time frame.
Many new construction projects are taken on for the sole purpose of milking unknowing people for their money.
In addition to this, finding a property in the works will reduce the time before usability, and will help you avoid any additional living/service expenses after completion.
2. Get a good lawyer and have him look at your construction loan.
Understanding the entirety of a contract can help ensure that all of the terms and conditions meet your preference and capability.
By finding the right lawyer, usually experienced in construction loans – you will reduce the likelihood of financial turmoil that can leave you paying off expenses, previously unseen for.
In most cases, a lawyer will tell you if the contract is worth to be signed.
3. Research the builder’s track record.
If your home builder was able to survive the housing bubble, they will most likely be a very capable individual for building your property. As they were able to mediate any financial issues during the bubble, even if their clients defaulted on loans.
However, this is not the only way to judge the credentials of a builder. You can also look at builders who reinstitute their company as new.
As their previous title could have legal/financial issues, which are not easily tracked after a title change. Consider all of their project histories and you will be fine.
4. Research the location in-advance.
Make sure to research the location property, considering all angles.
Infrastructure, schools, markets, transportation and much more – as this information can help you secure a TIF loan, which is a federal tax loan.
However, knowing this also helps sell the property if needed in the future.
5. Look for the most optimal interest rate.
Never take the first offer that comes your way. Always shop around, looking for the most optimal interest rate with a positive ratio to the risk factors.
You should look for the best rate with the best terms and construction projected outcomes. Sometimes you can have a great interest rate, but terrible terms. And vice versa.
If you want to learn how to find the best rates, check out this article.
6. Find out what happens if the builder does not finish on time.
If your builder is not able to finish on time, there is a high likelihood that you will be stuck paying both a monthly interest rate and the construction loan at the same time.
This can prove to be difficult, as there is a reason why a construction loan is broken down into two segments. During and after completion, in order to mitigate any possible financial issues.
7. Be bold and don’t settle for less.
If you have a large project in mind, but the lenders are not accepting your terms.
Don’t let them fiddle you around – be the one to make the change.
Find another lender or go to a federal institution that can match your vision.
Let them be the party to take the risk and see your property come to fruition for their benefit and your fulfillment.
Finding the Best Construction Loan Lenders Doesn’t Have to Be Hard
As we have outline within the entirety of this article, you should have a pretty good idea of how to find the best construction loan lenders to support your property vision.
Acquiring a construction loan is not difficult. It requires you to put in some of your time for research, and be confident with what you want.
Before you sign any construction contract, always have a lawyer look over and comprehend the terms. Research the location and lending options. Project your vision and believe in the best outcome possible.
By following and making use of the ideas within this article, you will be well on your way to having your project come to life.
If you are looking to build a new project, consider the ground-up construction loan that we provide.