Construction Loans
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Construction loans have been one of the answers and the solutions sought after by entrepreneurs and developers to finance the construction or the building of a real estate project or a home.
That’s basically it! It is the kind of loan that you can use to be able to cover project costs for building or renovation before getting funding for it long-term.
How Does a Construction Loan Work?
In a nutshell, the borrower or the builder of the property would take a construction loan out to be able to fund or finance the costs of the construction. More often than not, these loans last only for a year or less – and it’s designed to be like this because of the risk it has.
When the construction of the property is finished, you have two (2) options: you can get a new loan to pay off the construction loan you got initially or you can transform and refinance the construction loan into a permanent mortgage.
If the project is still being built or constructed, you’ll be required to pay for interests. However, there are some construction loans where you have to pay off the balance completely when the building of the real estate property is finished.
Construction Loans vs. Traditional Home Mortgage
The rates and the interests in traditional home mortgage loans would depend on the home’s market value. Furthermore, it’ll depend on the condition and the overall status o the home compared to other homes. On the other hand, construction loans would be based on the projected home value after the work has been completed.
Another way to look at them is with how the financier provides the funds. Construction loans are taken out not in a lump sum amount, but in phases whenever the construction is being done. Traditional loans, on the other hand, are given to the builder or the borrower in a lump sum amount at closing.
Different Types of Construction Loans
You can actually choose from the three (3) primary types and kinds of construction loans, namely:
This is the kind of construction loan wherein you’ll be purchasing a property that would need repair, renovation, and rehabilitation. More often than not, renovation construction loans are used to raise the property of the property to get a return for the investment (plus profits) or to provide a home for those who want to get one who is on a tight budget. This is the type of loan where the entire balance needs to be paid off when the building is finished and completed. You’d want this type of loan if you are confident with the profits and the proceeds of your current home; therefore, you’ll be able to have funds to cover another construction. In this case, you would have to search for a lender if you need a mortgage and get approved again. Last but definitely not least are these construction-to-permanent loans. These are the loans you’d need if you have concrete plans of construction; it’s ideal if you have various timelines of completion. To help you understand better, imagine a situation like this: The financer or the bank would pay the builder while the work is being fulfilled. Then, whatever they’ll be putting out as funds would be converted to a mortgage loan when it’s closed. The advantage of this type of loan is that you’ll be able to secure interest rates at closing; allowing you to be able to make steady and consistent payments.
Renovation Construction Loans
Construction-Only Loans
Construction to Permanent Loans
In taking out a construction loan, you should bear in mind the following considerations:
Even if you take the loan out via banks, the interest rates would substantially be higher than a traditional mortgage loan. This is for the reason that the rates correspond to a particular percentage over the primary rate. To illustrate, if the primary rate is just at 5%, and your loan rate is 2%, you would have to pay 7% as interest. Although the interest rates are higher, you wouldn’t have to worry about terms because they can be as flexible as you want! You can even negotiate terms and how payments would go if you do it through a real estate loan group! Construction loans are known to be one of the riskiest types of loans because they’re conditional. For instance, construction-only loans would require you to pay the amount in full when the building is completed. Therefore, you run the risk of growing interests if you fail to settle. These are some of the things that you need to consider if you’re thinking of taking a construction loan out. You’ll be able to get the funds, yes, but you have to remember everything that goes with it.
Higher Interest Rates
Flexible Repayment Terms
Riskier (Because They’re Short-Term)
Which Construction Loan Should You Take?
You can find many institutions and financiers that offer construction loans. But if you want to get the most value for the loan that you’ll be taking, then you need to consider working with us.
Here in Florida, no other company is trusted and is banked on but us here at Florida Commercial Real Estate Loan Group.
When it comes to our construction loans, we’re the go-to of new homeowners and those who want to engage in real estate investments.
Why Choose to Work With Us?
Florida Commercial Real Estate Loan Group will always be open to negotiation. Whether you want a construction-only loan that would be light on your shoulders, or if you’re looking for a loan where you can actually make a profit, we’ll work out ways for you!
We’ve helped thousands of homeowners and developers and that’s why we’re deemed as the best in and around the state!
Contact us and ask for a free computation of the construction loan you’re looking to take! You’ll never regret your decision of working and choosing us here at Florida Commercial Real Estate Loan Group!
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We service all counties and cities throughout South Florida. However, if you need any of these services in other cities throughout the state of Florida, please contact us. See what services we offer below:
