Choosing to build your own home, business, or investment property is an exciting venture. You get to be in control of every aspect of the design and decor and create something that could be in your family for generations to come.
For many, getting a construction loan can also be a stressful endeavor. Your hopes and dreams for your new build may quickly burst once you meet with a traditional lender and find out it’s not as easy as you’d hoped.
Fortunately, borrowers have another option: private construction loans.
These loans are funded by private lenders or funding groups that don’t need to meet the strict standards held by traditional lenders.
Read on to learn more about construction loans, including the five things you must know before you get one.
What’s your loan scenario?
What is a Construction Loan?
Unless you have the cash on hand available to cover the costs of building a new home from the ground up or renovating your existing property, you’re going to need a construction loan.
Construction loans are short-term loans that provide interested homebuyers or real estate investors with the funds to build.
Homebuyers, builders, and contractors often use construction loans before eventually getting a traditional mortgage for long-term financing.
Before you go after a construction loan, there is a fair amount of planning and preparation involved.
Private Construction Loans: 5 Things You Must Know
Building or renovating a home is a lot of work, and involves many moving parts. That’s why we put together this list of things you need to know before getting a private construction loan.
1. Put Together a Team of Real Estate Experts
Use your networking skills to put together a team of experts you can trust to guide you through the construction loan process.
These professionals will make sure you understand the type of loan you need as well as the rules and regulations for building.
You will need these types of real estate experts for your construction team:
- Licensed contractor
- Real estate attorney
- Real estate agent
- Private money lender
You may think the first step to getting your loan is to call up your current mortgage lender, or another traditional lender that was recommended to you. But before you do that, read our next tip.
2. You May Be Too “High Risk” to Your Traditional Lender
Traditional lenders, such as banks, often will either deny you a construction loan outright or will put you up against strict requirements. It’s nothing personal; they have to follow these requirements because construction loans are considered high risk.
There’s no collateral to back up the loan, because your home isn’t built yet. Borrowers and builders will need to provide detailed, organized plans and timelines due to frequent inspections. Builders will be paid on installments based on completed work.
Additionally, the lender will need to evaluate your credit score, debt-to-income (DTI) ratio, and down payment amount to determine whether you can comfortably repay your loan.
If this seems difficult to prove in your current situation, yet you know you can repay the loan and you have a solid plan for your build, talk to a private lender. They make it simple.
3. What a Construction Loan Covers
Your construction loan can cover all the costs of building your home, business, or investment property. For a new build, this can include purchasing an empty plot of land, or you can purchase a semi-built or completely built home.
Other covered costs include:
- Building plans
Your real estate team will provide the necessary guidance and support for planning and acquiring these components.
4. How a Private Money Lender Can Help
Private money lenders make the process quick and simple. They will evaluate your scenario based on common sense and the merits of the deal, rather than strict requirements.
Private lenders are able to offer broad and flexible lending guidelines for even complicated loan scenarios. Marquee Funding Group offers a wide range of loan options to fulfill a need for these unique borrowers.
Marquee offers same-day approvals and closing in as fast as seven days, so borrowers can move forward quickly on time-sensitive projects.
5. Construction Loan Requirements
Unlike traditional lenders, private money lenders allow lower credit scores and higher DTI ratios. They are able to do this because they are more interested in the equity and asset value of a property.
You’ll want to first establish a relationship with your private lender, so you can understand their own requirements and how they prefer to move through the process. Call a representative at Marquee Funding Group to help you through your construction loan process.
Your lender will want to see the budget and estimated timeline of the build. You’ll want to be as organized, thorough, and transparent as possible to help your lender move as quickly as they are able to.
Not all private lenders are the same. For Marquee Funding Group, building relationships and maintaining open and honest communication are as essential to the deal as anything else. Our team wants to do long-term business with you.
How to Get a Private Construction Loan
If you’re ready to start the process of getting a private construction loan, submit your loan scenario to Marquee today.
- Common-sense underwriting
- Loan amounts from $50,000 to $20 million
- Loan-to-Value up to 70% (deal specific)
- Owner-occupied or non-owner-occupied consumer or business purpose loans
- Single-family, multi-family, commercial, industrial, construction, and land loans
- Purchase money, rate-and-term refinance, and cash-out refinance options
Our loan officers are highly trained and capable of structuring mortgage options for even the most unique scenarios.