People often ask me why construction loans are so difficult? One would think this is a question a potential client, building their first home, or maybe a Realtor new to the construction arena would ask. Unfortunately this question I get asked most by colleagues in my profession. Loan officers, processors, and senior loan managers are just a few that are confused by construction loans.
Let me give a little insight to why construction loans are very difficult to figure out (even for those in the mortgage profession).
There are more variables to consider.
- Is the land already owned? If so when was it bought, how much, and what is the value?
- What are the soft construction costs?
- What are the hard construction costs?
- Have any items been prepaid?
- Do you have a General Contractor?
- Is he approved to business with the lender?
- Do you have plans?
- Permits?
- Any work started?
- Do you have working capital?
- Do you need an interest reserve account?
- Do you need anything refunded at close?
- Do you know how many draws you need?
This list could go on and on. My point is the amount of additional work that a construction loan requires is much greater than your last purchase or refinance. Keep in mind the mortgage a typical person completes has close to 35 people touching that transaction. With a construction loan there are even more associated with your file.
If any of this has you scratching your head you are not alone. Construction loans are dominated by a few select individuals because they are a special transaction. If anyone needs any more insight to my comment please let me know.
Best of Luck,
Troy Schuricht
www.communityfirstfinancial.com
Comments(0)