Now, if you’ve been through the home building process before, you know that construction financing isn’t the same as taking out a conventional mortgage on an existing home. But if you haven’t had the pleasure of having a castle built just for you, there are a few things you should know about new home construction loan financing. For instance:
• Getting approved for construction loan financing can be tricky. Two loans are often required – one for the construction period and one for permanent financing. Which means you’ll have to shop for both loans separately and will likely incur closing costs for both. However, if you qualify for a loan with a company that offers Construction-to-Permanent loans, both loans will be rolled into one – and take the extra steps out of getting your dream home financed.
• Bridge Loans can help secure your new owner-occupied primary residence home loan before you sell your current home. If you already own a home, a Bridge Loan will allow you to tap into the equity in your existing owner-occupied residence and use it as a down payment on a Construction-to-Permanent loan. When you sell your current primary residence or your new home is finished, you will simply pay off the Bridge Loan and make payments on your new home construction loan financing (a.k.a. – your mortgage).
• If you’ve found the right location – but aren’t ready to build your dream home – you can buy only the land and build on it later. Simply find a lender that makes Lot Loans, which is short-term financing that will give you time to choose an architect and builder to give you your perfect escape. Of course, many lenders are cautious about lending money on land, because it can be difficult to resell if the buyer defaults on the loan, so many request a large down payment with a high interest rate. So shop around for the best possible loan and save your money for the down payment on your construction loan financing.
Going through the process and doing your research will certainly yield additional information from experts in the field. But if you know what types of loans to look for – and what they’ll mean for you as your new home is being built – making the right decision for you and your financial situation will be a lot easier.
There are many new challenges which are increasingly evident with commercial mortgages, particularly those involving commercial construction loans. Many commercial financing experts currently project that the changing environment for working capital loans and most other business financing will produce several new but avoidable problems for small business owners.
There have always been complex problems for business owners to avoid when seeking commercial loans. By most accounts, these difficulties are now expected to multiply because we appear to be entering a period which will be characterized by even more uncertainties in the economy. Prior standards for commercial mortgages are likely to change suddenly and with little advance notice by lenders if the current financial turmoil continues.
This article will evaluate why commercial construction loans have become harder to obtain and will discuss possible commercial finance funding solutions. It is much more likely that borrowers will need to look beyond their local area for business financing help because of current economic uncertainties in combination with less capital available for commercial mortgages in general and construction financing in particular. In many areas of the United States, virtually all business construction funding sources are effectively inactive at this time in addressing new loan requests.
Construction loans were generally considered to be riskier than other commercial financing by most lenders even before business finance funding options became more limited recently. For a commercial lender, the most significant risk factors for commercial construction financing usually include the following: (1) until the new building is completed, a commercial property cannot produce income to repay a loan; (2) a substantial risk factor is the possibility for contractor liens; and (3) many commercial construction projects take more time to complete than originally projected and/or exceed initial cost estimates. Due to widespread business losses in the construction industry, the risk of contractor liens is a major concern for commercial lenders. In any event, current delinquencies in loan payments for commercial construction financing are running well above normal.
Construction financing for homebuilders has always been viewed separately by lenders because the eventual owners of single-family homes are individuals rather than businesses. From a commercial lending perspective, it is likely that the current difficulties seen in residential construction are indirectly impacting the availability of construction funding for commercial properties because the potential for contractor liens incurred during residential projects can quickly reduce the financial stability of contractors involved in both residential and commercial construction projects. This is a further reason why lenders are increasingly focusing on the risk of contractor liens as a rationale for providing less construction financing.
The feasibility of real estate investments has traditionally included an enduring theme of "location, location and location" which reflects the importance of a specific locale for investing. This is still an important factor when lenders evaluate the prospects for commercial real estate loans involving both existing commercial properties and new construction. A lender is likely to be most comfortable with a stable to growing revenue stream for a business which will in turn result in a stable to growing property valuation, thus preserving collateral for the commercial mortgage loan.
For the first time in several years, however, we are generally seeing widespread reductions in both residential and commercial property values throughout much of the United States, with some areas of the country exhibiting more volatility than others. A severe recession will result in decreasing income for many businesses over an extended period of time, and it is very difficult for either lenders or borrowers to project when this downward trend will reverse.
Given the difficulty of arranging financing based on location, using non-local lenders can be a practical solution for commercial financing involving both existing commercial properties and new construction. In the challenging commercial borrowing climate that currently prevails, business owners should seek candid advice from a commercial loans expert who can provide effective strategies for difficult and changing business finance funding situations such as those described above.
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