Part of being successful as a builder is to have the ability to acquire construction financing funds on a timely basis for the projects you’re working on that require builder loan financing.
The challenge many builders have is that they leave the process of applying for construction financing too long and end up scrambling to get capital in place for the start of construction or at least for the timing of the first draw.
The recipe for securing a builder loan has three basic components.
First, the down payment and/or equity investment from the real estate where the construction is going to take place is easily established by way of third party documentation such as an appraisal in the case of land value.
Second, all the construction requirements have been met for the regulatory bodies preside over the project. That means any zoning changes have been passed, building permits are secured, and drawings and budgets have been finalized.
Third, and perhaps most important, the builder has a solid exit strategy to repay the builder loan at the end of the project. Primarily, this involves a presale agreement with a customer where a binding document has been signed and a deposit provided. Building houses into inventory will be more difficult to secure financing for because of the unknown exit strategy and related timing.
If you’re in a hurry to get a project going, you’re also going to want to get more focused on private mortgage construction lenders as any institutional construction financing program is not likely going to be approved in a short period of time. Private mortgages will cost more, but they are also faster to get into place and manage.
The best first step in putting everything together in order to get construction financing with the best available results is to select a construction mortgage broker that has experience with your type of construction project in the area where the construction will take place.
This can be a key ingredient to success with the application process and one that gets over looked by more than a few professional builders.
If you’re looking to secure a builder loan for a project you’re planning or one that you’re in the middle of, I suggest that you give me a call so I can quickly assess your requirements and provide relevant construction financing options we can go through together.