New Construction Loans: 5 Things Brokers Need to Know

Building a home from the ground up is an exciting venture, but it’s no secret that the costs can add up quickly. For most buyers, paying for a new construction project out of pocket isn’t an option—that’s where construction loans come in. As a broker, understanding the ins and outs of construction loans can help you guide your clients through the process and position yourself as a trusted advisor.

In this blog, we’ll break down five key things to consider when it comes to new construction loans. Whether your clients are building their dream home or developing a multi-unit property, your expertise can make all the difference in their success.

What Are Construction Loans?

A construction loan is a short-term, higher-interest loan designed to cover the costs of building a new property. This includes expenses like land acquisition, contractor labor, building materials, permits, and more. Unlike traditional mortgages, which are based on the value of an existing property, construction loans are riskier for lenders because there’s no finished structure to serve as collateral.

Here’s why brokers need to understand construction loans:

• Short-Term Financing: Construction loans typically last 6–18 months, making them ideal for new builds.
• Higher Interest Rates: Due to the increased risk, construction loan rates are often higher than traditional mortgage rates.
• Flexible Options: There are different types of construction loans to suit various needs, from single-family homes to large-scale developments.

By mastering the nuances of construction loans, you can help your clients navigate the process and secure the financing they need.

1. Help Your Clients Make a Plan

Before applying for a construction loan, your clients need a clear plan. Lenders want to see detailed blueprints, budgets, and timelines to ensure the project is feasible.

How Brokers Can Help:

• Provide Templates: Share project planning templates to help your clients organize their ideas.
• Connect with Professionals: Recommend architects, contractors, and engineers who can help bring your client’s vision to life.
• Explain the Process: Walk your clients through the steps involved in securing a construction loan, from application to closing.

A well-prepared plan not only increases the chances of loan approval but also sets your clients up for a smoother construction process.

2. Get Their Credit in Order

While credit score isn’t the only factor lenders consider, it plays a significant role in the approval process. Construction loans are inherently riskier, so lenders may have stricter credit requirements.

How Brokers Can Help:

• Review Credit Reports: Advise your clients to check their credit reports for errors and dispute any inaccuracies.
• Improve Credit Scores: Share tips for improving credit scores, such as paying down debt and avoiding new credit inquiries.
• Prepare Documentation: Help your clients gather the necessary financial documents, including tax returns, bank statements, and proof of income.

By helping your clients strengthen their financial profile, you can improve their chances of securing favorable construction mortgage rates.

3. Choose the Right Type of Construction Loan

There are several types of construction loans, but the two most common are:

1. Construction-Only Loans: These short-term loans cover the cost of construction and must be paid off or refinanced once the project is complete.
2. Construction-to-Permanent Loans: These loans convert into a traditional mortgage after construction is finished, streamlining the process with a single closing.

How Brokers Can Help:

• Explain the Options: Break down the pros and cons of each loan type to help your clients make an informed decision.
• Match Loans to Needs: Recommend the best loan type based on your clients’ financial situation and project goals.
• Negotiate Terms: Work with lenders to secure competitive rates and terms for your clients.

Choosing the right loan type can save your clients time, money, and stress in the long run.

4. Address Timeline Issues

Construction projects are notorious for delays, whether due to material shortages, weather, or contractor availability. These delays can impact your clients’ loan terms and overall costs.

How Brokers Can Help:

• Set Realistic Timelines: Work with your clients and their contractors to create a realistic construction timeline.
• Plan for Contingencies: Advise your clients to include a buffer in their budget and timeline for unexpected delays.
• Monitor Progress: Stay involved throughout the construction process to ensure everything stays on track.

By addressing potential timeline issues upfront, you can help your clients avoid costly setbacks.

5. Find a Reputable Construction Loan Lender

Not all lenders are created equal. When it comes to construction loans, it’s essential to work with a lender who understands the unique challenges of new construction projects.

How Brokers Can Help:

• Research Lenders: Identify lenders with experience in construction financing and a track record of success.
• Compare Rates and Terms: Help your clients compare construction loan rates, terms, and down payment requirements to find the best deal.
• Build Relationships: Partner with trusted lenders like RCN Capital to offer your clients competitive financing options.

A reputable lender can make the construction loan process smoother and more transparent for your clients.

New construction projects are exciting, but they come with unique challenges. By guiding your clients through the construction loan process, you can help them avoid costly mistakes and achieve their goals.

Why Brokers Should Partner With RCN Capital

At RCN Capital, we know the special needs of real estate investors—and the brokers that serve them. Here's why brokers prefer to work with us:

• Flexible Programs: From fix-and-flip financing to long-term rental funding, we provide solutions to suit your client's requirements.
• Fast Closings: We can close loans in as few as 10 business days, helping your clients move quickly on opportunities.
• Broker-Friendly: We value our relationships with brokers and offer competitive commissions, fast approvals, and dedicated support.

By partnering with RCN Capital, you can provide your clients with the financing solutions they need to succeed in the competitive world of real estate investing.

Ready to take your brokerage to the next level? Connect with us today to discuss our real estate financing solutions and how we can help you grow your business.