Can I get a loan in the middle of a construction project?
5 minute read
June 10, 2022


Construction looks much different now than it did a few years ago.

Inflation and supply shortages have caused construction materials and labor costs to skyrocket. If you began building your home, business, or investment property with a bank construction project loan and ran out of money, where do you turn?

Or maybe you thought you had budgeted enough for construction with your own funds but grossly underestimated the price increases.

In either case, you likely have discovered that you can’t turn to a bank or other traditional financing for help. These types of lenders generally won’t be able to help you finish a project you already started — even if it was underwritten prior to the cost increases.

However, a private money lender can help.

Let’s dig into common issues people are running into right now while trying to build, why these costs have skyrocketed, and how hard money lenders such as Marquee Funding Group can help you finish your construction project.

What’s your loan scenario?

Problems that can happen while building a new home

First, it’s important to understand that construction loans are considered “high risk” to traditional lenders from the start.

New construction projects have a lot of moving parts, meaning there’s a lot that could go wrong. Funds usually are dispersed in parts, and lots of paperwork is involved to make sure the project is staying on track.

The biggest issue to banks is that the home they’re using as collateral for the loan isn’t built yet.

Construction loans in their true form are short-term loans that cover the costs of building the home or business.

Borrowers will need to eventually apply for a traditional mortgage to purchase the completed home.

So, what can go wrong? Here are the most major issues that can occur while building a home:

  • Costs run over their estimations
  • Construction is delayed due to material shortages or delays
  • Contracts are structured wrong
  • Weather delays
  • Construction plans change due to any of the above

The most troublesome issues for banks, builders, and borrowers right now are the increasing costs of materials and labor.

Many bank construction loans were underwritten before the cost of materials and labor increased. 

As a result, many people got loans based on much lower construction costs, and now are unable to complete their projects.

Why did the cost of materials and labor increase?

Researchers cite many reasons for the increases in material and labor costs, including pandemic-charged global supply chain issues, inflation, and climate change disruptions.

From March 2020 to December 2021, the costs of construction inputs increased for both new residential construction and remodeling at 23.6 percent and 21.5 percent, respectively.

The industry is also experiencing labor shortages that are worsening in 2022 as construction projects continue expanding.

This means an increasing number of borrowers will find themselves unable to complete their new construction projects, and will be left without adequate funding from their bank loan.

Why can’t banks provide construction project loans in the middle of a build?

Simply put, a bank won’t provide additional funding to you in the middle of a construction project because it’s just too complicated and risky.

Costs are only continuing to increase right now, meaning adjustments will need to be continually made. The lender will likely order another appraisal to see if you can cover the new costs, and must determine if you’re maxed out on your loan-to-value (LTV) ratio.

If you’re approaching the bank that initially provided you with a construction project loan, this money would need to be paid off, and everyone who worked on the property thus far would need to be paid as well.

If a bank was willing to deal with the paperwork alone, it’s likely that a borrower would not be able to meet the steep requirements for additional funding, including excellent credit.

If they are, it may mean you need to re-evaluate your project and make significant sacrifices on your dream property to complete the construction.

The worst part is, none of this is your fault. When you initially budgeted for your project and the bank approved a loan, it was for pre-pandemic amounts. So at one point you did have enough to complete the project — you just need some adjustments now.

What to do when you can’t finish building your house

Fortunately, there are other funding sources available for borrowers who need to finish their construction project.

Private money lenders are able to offer more flexible requirements and a quicker borrowing process to help borrowers continue their projects. These lenders are more focused on the equity and asset value of a property.

Marquee Funding Group can finance your new construction project whether it’s 1% completed or 99% completed, and anything in-between.

Private lenders such as Marquee aren’t required to follow the same strict lending requirements that banks do, and instead have the freedom to evaluate each borrower’s scenario with common sense and the overall merits of the deal.

Marquee can even close on your loan before receiving the certificate of occupancy.

Private money, or hard money, lending is also rooted in real relationships with borrowers, which allows for an even smoother lending process based on the trust and respect of a successful partnership.

Marquee Funding Group offers:

  • Closing in as fast as 7 days
  • Common-sense underwriting
  • Owner-occupied or non-owner-occupied construction loans
  • Consumer or business purpose construction loans

If you’re in the middle of a construction project and need a loan to complete it, reach out to our team today to get started.

If you haven’t started construction yet, even better. Talk to our lenders today about your deal to secure financing for the permits, labor, materials, building plans, and more. We think you’ll love our common-sense approach to lending.

Get Started With Marquee Funding Group

Image by jcomp on Freepik

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