Hi all: I hope you're well. The construction lending landscape has changed drastically in the past four years.
I was having a conversation with one of my colleagues the other day and we were reminiscing about the day that the two largest construction lenders were Indymac Bank and Countrywide. Of course, both of these banks essentially failed. Yes, I know Countrywide was purchased by BofA. But they were failing and would have gone down if that hadn't happened.
What's different about construction lending in 2011? The number of players can probably be counted on one hand. Plus, the volume of paperwork and documentation due to lender guidelines has increased dramatically.
If you're a potential client for a construction loan here are some general guidelines for you to consider.
1) In most cases, you should own your lot free and clear. There may be exceptions but don't count on it
2) Try and choose a contractor with a good reputation. These days, that means your contractor will probably be vetted about their personal finances and business dealings.
3) Try not to shop price and fees. I recently lost a loan where an unnamed bank had a screaming deal on their construction loans. The bottom line was my prospect has a difficult lot to build on (they had already been turned down by another bank well-versed in construction lending) and may be turned down again.
4) Choose someone who has experience in construction lending. The loan will probably require twice as much paperwork and time to close as a normal purchase or refinance. Again, pricing and fees don't matter if you choose someone who has little or no experience.
5) Have patience. Construction loans are a great way to go whether you're building a house for yourself or to sell. But, again, it's a process. A great team that includes your realtor, builder and loan officer will get the job done for you.
That should do it for now. So many people's dream is to build their own home. This is being done every day. I'm also seeing a return to the market of the builder. If you have further questions, please don't hesitate to contact me. Thanks for reading!
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