Constructing a new building is always a major undertaking, you have all the plans laid out, have all the zoning and building permits squared away, and have prepared the lot, but now that the dust has settled you come to the uncomfortable realization that you are in danger of running low on funds! No further action is going to take place on your building until you have secured some financial backing.
Getting financing for building projects can be a real challenge, but there is a great way to do it specifically designed for your needs, a construction loan. The construction loan, which is handled by a construction mortgage broker, is used to finance the construction of a new building or the renovation of an existing property. The construction loan is generally short-term, issued for a specific period ranging anywhere from six months to three years. Once the construction project has been completed, the borrower has the option of converting the loan over into a standard mortgage, or repaying the outstanding amount in full.
Construction loans are divided into two main types, the construction-only loan and the construction-to-permanent loan. The construction-only loan is, as its name suggests, only used to finance construction costs, and is a short-term loan. Once the construction has been completed, the borrower has the option to either pay the loan off in full, or to obtain a permanent loan to refinance the property. On the other hand, a construction-to-permanent loan comes with provisions for the loan to be directly converted into a standard mortgage after the construction has been completed.
The following are some of the advantages that taking out construction loans can bring you:
Construction loans get you the money you need to see your building project through to its completion. With your building costs financed, you don’t need to worry about falling short on funds. These kinds of loans are highly flexible and are able to cover your construction expenses in full, and that includes labour, permits, and materials, whatever you need to get the job done! When you are working with a construction loan there is no need to worry about running out of money or having to stop work on a project during the construction.
The ability to reuse equity is another great benefit of taking out a construction loan. Say that you’ve already invested in a property, and are planning to construct an additional building on it, having a construction loan will allow you to tap into the equity that you have already built up in that property. You will be able to use the equity from your first property as collateral to obtain your construction loan, which allows you to fund your new building project without having to throw a lot more cash at it!
Construction loans generally have a lot fewer restrictions regarding receiving approval, there are far fewer obstacles than those you would face obtaining a traditional mortgage. This is a result of these loans being designed to cover only specific aspects of the building project. The requirements of construction loan are for the most part focused on the construction process instead of the borrower’s overall credit score, making it much easier for borrowers to acquire financing.
Happy building!
