If you want to build or renovate real estate property and plan to refinance it for the purpose of selling it for a profit or generating rental income, a construction loan is probably your best option.
Since the vast majority of people cannot afford to pay for the cost of a new residential or commercial project upfront, the process of securing a construction loan usually starts with a lender such as Maxiron
However, unlike a conventional loan, getting the green light on a construction loan application is usually more complicated since it basically involves borrowing money to finance a new construction that does not exist yet. This post outlines some of the requirements needed for you to qualify for a construction loan.
We even have a 5 minutes online application for easy access and faster processing.
Qualifications for a Construction Loan
Your trust as a borrower not only falls in the hands of a competent builder to do a great job, but after the property is completed, but it also must have a certain value for the lender or bank to consider it a good investment. We require a number of documents, including the provisions below to reduce such risks:
● A Detailed Description is Required by the Lender
You will be required to provide a list of details that typically includes everything from a timeline of the anticipated project, cost and profit projections, floor plans, as well as an inventory of materials to be used, subcontractors, and suppliers.
● A Qualified Builder.
To get a lender to finance the project, you must have a licensed and reputable builder. Unless the plan is to be your own building contractor or build the house with your own hands (which requires a loan of a different type), you will be required to include a list of the builder’s past and current projects as well as a profit and loss report.
● A Minimum Down Payment of 20 Percent
For a construction loan, you will need a minimum of a 20 percent down payment. This is to make sure that you can carry out the cost of the construction, even when things fail to go according to plan.
● Proof of Your Ability to Repay the Loan
We will request to see proof of good credit as well as income. This way we can make sure that you are updated on your repayments on other loans.
● The Value of the Property Has to be Appraised
The criteria for qualifying for the loan is based on the value of the completed project. Appraisals usually depend on the market conditions and are location-specific too.
How Do Construction Loans Work?
The construction loan application starts out as a short-term loan that’s used for covering the cost of building the property from the ground up. Upon completion of the project, the borrower enters a permanent loan (also known as the “end loan”) to pay off the short-term loan.
Whether the construction project involves the rebuilding of an entire home, the building of commercial or residential property from the ground up, or even a renovation, we typically work with borrowers as well as their timelines to facilitate a construction loan that’s designed to the specifications of their project.