Construction loans, also known as construction financing, are short-term loans (typically ranging from 6 months up to two years, depending on the construction period) used to finance the costs of building different kinds of real estate projects. These can be taken out by individuals to build or convert their homes or by businesses to develop construction projects like high-rises or subdivisions.
Construction loans are used to cover all expenses typically associated with real estate projects, including land purchase, site preparation, permits, foundation work, framing, utilities, landscaping, professional fees, contingency funds, etc.
Getting a construction loan requires detailed paperwork and a development plan, so the lender can assess the project's viability and risk. Our team will work closely with you to ensure you have all the required documentation ready.
The funds made available through construction loans are released in draws based on reaching specific milestones (like finishing the foundation laying). After each set milestone, an inspection needs to confirm all work is truly done before further funds are released. The initial costs - land purchase, permits, foundation laying - oftentimes have to be covered by yourself as your initial draw might still not be available. There is also one final inspection done after the construction work is finished so that the lender can ascertain the project has been done according to the documentation provided.
Construction loans have higher interest rates than standard mortgage loans due to the higher risk involved in developing such projects. During the construction phase, interest rates are typically variable and apply only to the drawn amounts, not the full loan amount. It is also standard for the borrower to be paying back interest-only installments during the construction phase.
Once the construction is finished, the construction loan is converted into a standard mortgage or commercial loan. This process is called construction-to-permanent financing and typically requires an additional approval process to confirm the borrower’s financial situation hasn’t undergone any significant changes.
Getting a construction loan approval can be quite a complex and time-consuming process. We help dozens of individuals and businesses smoothly secure construction financing for various real estate projects each year. With years of experience in this field, we’ll ensure you get access to the best lenders and products currently available on the market.
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