No single sector has benefited more than the construction industry during the comeback of the U.S economy following the 2008 financial crisis. Construction in the U.S. is a multi-billion-dollar industry, with over 650,000 employers and over 6 million employees. The increasing activity in the home builders sector has led to high demand for financing. One of the ways home builders are securing the financing they need is through construction loans.
It is important to note that construction loans differ from mortgage loans. If you are unsure of what a construction loan entails, the following information should clear up any questions you have. If you are having problems obtaining a construction loan, you will also find helpful tips on where you can find alternatives.
What is a Construction Loan?
A construction loan is a type of bank-issued short-term financing (generally one year or less) that is specifically for financing a new home or other real estate project. A construction loan does involve more risk than a standard mortgage, so the interest rate may be higher. The approval process is also different. The originator of a construction loan will require detailed plans, a budget, and construction timetable.
Unlike a standard mortgage, a construction loan pays out as progress is made on the project. These pay outs are generally broken down into phases, with cash being disbursed as each of the phases is completed. That being said, construction lenders like to keep a close eye on the situation and may send out representatives to check on the building site progress.
Who can Apply for a Construction Loan?
A construction loan can be applied for by anyone who is investing their time and money in construction or related expenses. This includes individual homeowners, contractors and small business owners that need to finance a construction project. These loans are not just for an actual building; a construction loan can also be used to pay for building equipment used in construction, building materials or for hiring employees.
Construction Loan Qualification Guidelines
Very low down payments are required for a standard mortgage. A construction loan, on the other hand, typically require a large down payment, anywhere from 20-25% of the total project cost. Thus, if you plan to build an $800,000 market value home, you should be able to secure a construction loan for $640,000. Keep in mind that you might be able to use all or part of the land the home is being built on as a down payment (if you own it fully).
Alternative Construction Financing Options
Just as there are differences between construction loans vs. mortgage loans, there are differences between traditional lending options and alternative ones. Lenders like First American Merchant specialize in helping small business owners seeking faster funding options. Individuals suffering from poor credit, bankruptcy or tax liens can also secure the quick cash they need.
If any of these obstacles has prevented you from securing the cash you need to get started, consider working with the team of experts at First American Merchant. You can receive the money you need in as little as 24 hours. Avoid unnecessary wait times and strict requirements, so you can get started on your construction project today.