How Do New Construction Loans Work?

Regardless of the real estate market’s state, investors need money to fund their projects. Construction loans offer a short-term financing option that will cover the costs associated with completing a property project. This loan can help you buy land, draft plans, take permits, and pay for materials and labor.

With construction loans, future property owners can easily cover the building process costs. However, you’ll need streamlined architectural plans and precise financial statements to get approval for these loans. Also, don’t expect all the cash once your lender approves the loan. Instead, they pay your builder with multiple installments throughout the construction’s stages.

How Can you Get a Construction Loan?

Typically, the approval of a construction loan is more rigorous compared to mortgages and other traditional loans. Expect a more stringent approval process, given that you won’t provide the usual collateral for these loans. Lenders will not only impose traditional borrower standards but also review your architectural plans, construction timelines, and proposed budget.

Are you wondering how to get approval for an urgent construction loan? Here is what you’ll need:

  • An excellent credit score – Lenders often require a credit score of at least 680. Before setting out on a construction project, take time to enhance your credit score.
  • Steady income – Besides a strong credit score, lenders need you to have enough income to offset your loan. You might need to provide your financial statements to prove a steady income.
  • Construction budget approval – Providing detailed construction documents may also increase your chances of securing the construction loan. Compile your detailed line-item budget, complete building blueprints, signed construction contract, and deed for the land.
  • Contractor approval – Your lender will also need the assurance that your architect has the right qualifications. You might need to provide their insurance certificates or resume and proof of financial stability.
  • Low debt-to-income (DTI) ratio – A low DTI ratio indicates that you have enough cash to pay the construction loan each month. Many lenders require a DTI ratio of less than 45% to qualify for a construction loan.

Considering a Hard Money Loan for New Construction

The changes within the real estate market have made it more difficult for developers to get resources from traditional lenders promptly. Increasing paperwork and documentation contribute to the lag in timely loan closings. Hard money loans can prove decisive and helpful in such situations.

Hard money construction loans can help developers kickstart their new construction projects quickly. Such loans are especially handy for anyone who has failed to secure a loan from a traditional lender. They are also invaluable if you need to meet specific deadlines for the project but don’t want to wait for a conventional loan program.

Choosing a Construction Loan Lender

Before settling on a lender, ensure that you find one who fits your unique needs. Inquire about their construction loans and the available interest rates. Also, ask about their closing costs and other associated fees. It is also helpful to know what happens if your project delays or construction costs shoot up unexpectedly. Such information will guide the choice you settle on.

RCN Capital | New Construction Loans

Here at RCN Capital, we offer a 12-24 month term program with rates starting at 7.99%.

RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners throughout the country. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. If you are an investor looking to finance a new construction, RCN Capital has competitive loan options available.Connect with us todayto discuss your next new construction loan deal.