You can picture the perfect home or building in your mind. You may even have drawings already done and are speaking with a contractor. When it comes to financing your construction project, however, you’ve come to a bit of an impasse. Massive construction projects are often too expensive for a company or individual to finance themselves. This is where construction lending comes in. So, what do you need to know?
How Do I Apply for a Construction Loan?
Applying for a construction loan requires a detailed and clear plan before speaking with a lender. If a lender chooses to finance a project, they likely set benchmarks for construction. That means you must complete a percentage of the work by a set date. These benchmarks are decided on based on the plan you submit. A lender will expect construction to have a set completion date and for you to stick to that date. That way, repayment can be scheduled following completion of the project.
It’s important to note that construction loans are risky for a lender. You’re building a new asset from scratch meaning it doesn’t yet exist on the property. And because of this added risk, it can be difficult to find lenders willing to finance major construction projects with unknown developers. Having a relationship with a lender, or seeking out an investing company who has a lot of experience in the development and construction realm, can increase your chances of approval.
How Much Do I Need?
You want to be sure you’re borrowing enough to cover any costs from unforeseen hiccups in construction. This can involve machine breakage, weather, employment issues, or waiting on ordered parts and appliances. Be prepared for these delays and unplanned costs and factor them into your plan.
What About Interest Rates?
In terms of length of time, construction loans are generally shorter in term than a usual mortgage loan. They’re specific to the period of construction. It’s due to this shorter term, and higher risk to the lender, that ultimately creates the higher interest rates of construction loans.
I’ve Been Approved, What Next?
Once a lender has approved your plan and you’ve agreed on dates, interest rates, and terms of the loan, the bank will issue you a bank-draft or draw schedule. Your construction process will also be closely monitored by a lender who will usually want to check on the progress of construction whenever you make a withdrawal.
Building from the ground up can be a complex and exciting process. Securing construction financing and finding a lender who’s knowledgeable about construction lending and construction loans is vital to the success of your project. Each construction project is as unique as the building that will eventually come out of the plan. Due to the particular nature of each project, it’s important to speak with lenders and for you to have a detailed outline of your proposed project early on. At Cooper Pacific, we’ve been involved with construction and real estate development for a long time. It’s our unique understanding of the challenges that can appear during construction that gives us a creative and flexible edge when it comes to lending.
If you’re looking for a way to secure funding for your construction project, get in touch with us today to start discussing your project. Let us help you get construction underway sooner than you thought possible.