How to Get the Best Construction Loan Rate

Education & Training with Property Investment Wise

Building a home to live in or building one to start a real estate investment career can be an enjoyable but difficult experience. The problem is many people do not know how to get a construction loan. Getting a construction loan, especially as a start to a real estate career, can be a difficult and frustrating undertaking. Since there are very few people who can outright afford to pay for the construction of a piece of property without help, they have to begin searching for construction loans. A basic mortgage loan is not going to see the task to completion, so the prospective builder has to begin shopping around at banks and lenders for the best construction loan rates. The steps below will help builders out through the process and hopefully aid them in finding the best construction loan rates.


Learn the Options

The first step and introduction to construction loan rates comes from learning the options for construction loans. The typical 30 and 15 year fixed loans are standard in construction just like in mortgage loans, but construction loans offer a slew of ARM loans, including a popular interest-only option. There is also a one year loan available, which requires the borrower to refinance and transition into mortgage once the building process has finished. This deal can be a bit costly considering closing costs have to be paid twice, and a whole new process to re-qualify has to take place after construction is completed. There is an upside to it though, and it offers more ability to maneuver when looking into a standard mortgage versus dealing with just construction lenders. One of the better options to consider depending on the borrower's financial situation is rollover loan, despite having many other brands, and there is just a single set of fees and a single closing. Whichever option sounds good still requires a good construction loan rate pairing.


Getting Pre-qualified for a Building Loan

When it comes to getting a loan for construction, being pre-qualified is more important than most people realize. While it is true banks have guidelines for loan amounts and interest rates, which have to match up with the borrower's qualifications, loan offers can offer some assistance. First, if a person is needing a loan to begin construction for real estate investment, then they need to have a qualifying credit score. The best way to get the loan amount requested is to have a great credit score. Also, the best way to get the optimal construction loan rates is to have great credit score too. Those factors have to be established just to get consideration. Next, to get a loan for building property, the lender needs to know the borrower's story. They will want to know what the point of the construction is, why bother with going through all the trouble and they will want to hear and read very specific details on the construction project step-by-step. construction for the purpose of investment may very well get a favorable package and rate if the business plan is sound.


Investigate Multiple Avenues for Lender Capital

It is so important to visit several financial institutions to secure the loan amount needed and the best rate possible. Banks are not known for offering a lot of choices, and some offer no choice, but they do offer loans. Common sense tells any prospective real estate developer, amateur or otherwise, if a bank offers loans but not choices, then every bank needs to be visited to find the best rate. It is crucial to not get lazy about it either. If the property is for real estate, then it may take time to find someone to buy the property if this option is the angle, and the same principle applies with a lease to purchase option. Properties built to rent out can be even more of a gamble, and the borrower may be forced to cover the monthly payments and interest until the rent income is at the achieved amount to do so. If everything goes perfectly according to plan after construction, then a favorable rate also means a far more favorable profit, so it is crucial to be an attentive student on how to get this kind of loan, especially with a lovely interest rate attached.


The Loan Broker

If after all of the bank shopping is completed and an attractive deal has not been found, then there are other options. The borrower can seek a building loan broker, preferably one with a lot of experience and a good reputation. This is a first time loan to build something, which can lead to a legacy, so it is crucial to find an honest, experienced broker, or it may be the last time. Real estate loan brokers are supposed to be experienced in dealing with banks on acquiring loans for property construction. The loan broker will have a direct relationship with multiple financial institutions, and there is a reason for this. The broker represents the banks. The major positive of dealing with a broker is there is no charge.


In conclusion, there is no magic path to getting the best rate on loan for this venture. There are a lot of options though. The best thing a borrower can do is plenty of research, and they need to be fully prepared. Good credit, thorough examination of options and refusing to settle for anything unless it feels right is the best way to get the loan and a good rate.


Posted by

Joe McCord works at REAA.

Comments (2)

Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

I would say that's a pretty good policy, and thank you for posting it and giving it to the world!

May 17, 2016 04:08 PM
Sarah Smith
Property Investment Wise - Las Vegas, NV
Making It Rain On The Regular

Thanks Laura Cerrano.

May 17, 2016 04:33 PM