subject: Getting A Loan For Construction Projects [print this page] The search for the perfect first home that will meet size, price, and layout qualifications is very exciting and stressful. However, building your dream home is even more exciting and expensive.
There is a lot of planning that must go into this project and it can be very stressful at times. What seems like hundreds of legal documents that will need to be read and signed to get your home approved can be overwhelming at times.
One more agreement that you will most likely need to work through is a construction loan agreement. This will help you be able to afford building your new home and making your dreams reality, but it can be confusing at times.
A construction loan agreement can be made to an individual, business, or group who needs more money to build a large construction. These loans have covered a family home, a skyscraper that is home to thousands of offices, or a shopping mall.
Despite the complexity of the process, the form has been created to be as understandable and easy to fill out as possible. The construction loan agreement is usually consider a short term loan agreement.
This means that these loans are intended to help construction keep moving or to provide enough funds to get the project started. They are not meant to be the primary funding of the project.
Before you begin building you should have the majority of what you need to pay for the entire project. Most construction loan lenders expect the loan to be paid back quickly.
Generally, the longest amount of time a borrower has to pay back the amount of the construction loan agreement is 12 months. Due to these expectations, most lenders will require proof of permanent financing.
However, it is possible to obtain a construction loan without permanent financing. Another defining quality of construction loans is that the total amount of the loan is not given to the borrower in one solid chunk.
It is usually provided in smaller pieces to avoid using all of the money on one particular aspect of the construction. This method also helps the construction keep moving along.
The interest rate for construction loan lenders is about one percent of the prime and adjusted monthly. This interest rate is dependent on which stage construction is in and the original agreement between various parties including the construction company, the borrower, other lender, and contractors.
For construction loans, the interest rates are usually higher because of the short term of construction loans. The borrower is expected to pay for all related costs related to the loan or third parties involved in the process.
Points can be purchased using these construction loans to keep the long term costs low. When selecting a company to borrow a construction loan from it is important to look for clarity in the loan agreement.
If there are any vague statements that do not make sense, be sure to get them clarified before you sign. Consider finding a new company to work with if there are many vague statements.
Make sure that all of the terms and conditions are what you can work with. You do not want to be surprised by hidden fees down the road.
Be sure that you are completely familiar with the repayment options defined in your particular construction agreement. There are usually lower installment options available.
The general construction loan agreement should be unique to your project and building plans. Do not be too surprised if a new document needs to be created to fit your needs.
Be sure that you have the means to pay back the construction loan or you may face collateral repossession. A construction loan can be anywhere from $50,000 to $2, 000,000.
If the time comes when the loan is due and you do not have the money to repay it you can simply transform the loan into a mortgage. These construction loans can be a life saver when something goes wrong and there are not enough funds to reverse and fix the damage.
