Understanding the process of construction lending
Many brokers work as construction lending consultants and they can assist you to approve your loans from leading banks and private lenders. However, these brokers must understand the risk factors associated with this construction lending and they should incorporate the long-term benefits including the percentage of the projects that lenders can finance rate of interest, and repayment structure of the loan. After processing the loan, the broker must visit the construction site, estimate the cost of the full project and then they should underwrite the project value and its associated costs.
- For construction lending, developers should apply to the lenders with all necessary documents including their license, insurance papers, risk insurance, property papers, architect’s letterhead, and construction contracts.
- Know about the risk factors of the lending process. Read the terms and conditions as well as the lender’s agreement before finalizing the loan. Some lenders can charge you the pre-closing fees and in this case, you cannot repay the full amount before schedule.
- When you apply for construction lending, you need to produce the complete project plans including mechanical plans, plumbing, ventilation, and floor plans to the lenders. Besides, the lending agreement should be structured with all necessary details including the economic value of your projects, leasable square footage and detailed descriptions of total square footage.
- Apart from that, you need to include the landscaping structure, interior and exterior plans of your construction, lighting systems as well as, water plant design in the lending agreement.
Construction lending is not a simple process and a professional broker can assist you for lending. These brokers are experienced and they can evaluate your property value and the value of your projects. Then they can compare the interest rates of different lenders and choose the low-interest construction loans for you.
What are the benefits of construction lending?
Construction lending agreements are done between the lenders and the developers. Developers can take or draw the funds from the lenders for their construction process. Some lenders allow borrowing the raw materials from any sources like online and offline outlets. However, most of them now allow the developers to buy their building materials from offline stores, and the developers need to submit the bills to the lenders after purchase.
The repayment schedules mainly depend on the developer’s needs and most of the states lock a percentage of total loan amounts. The developer need not pay any EMI during the construction process. After construction is completed, the developers need to pay the rest amount on a monthly basis. Apart from that, developers can choose the different repayment schedule and they can repay the interest amount only during their construction process. After the construction process is completed, they can pay the principal amount to the lenders.
So, it is suggested to read the loan terms and make the agreement with the lenders carefully. Always calculate the risk factors and then apply for the construction lending with the help of some reputed loan brokers.
Author: Lillian Connors