Compared to almost any other type of mortgage financing, construction financing can be very challenging to administer for both the borrower and the lender.
Remember that the nature of a construction project is to build something out in the open where weather and landscape can play a big factor in both coordinating work and estimating costs. Add in all the people that need to be organized and deployed to perform work and its a headache in the making.
So before going down this less than linear path, its important to align yourself with a lender that you are going to be able to work with and that will work through issues that may arise from time to time.
When considering an institutional lender, there are going to be some pretty clear policies and procedures in place that guide how the organization will manage your construction mortgage requirements and draw requests. But the institution is still run by people, and if you don’t have a good feeling from the person that’s going to be assigned to your construction mortgage, you may want to consider another source.
If you don’t have someone you feel you can work with, communicate effectively with, or believe they will fight for your benefit, move on.
With private construction mortgage lenders the lender selection process is even more important. Often times, a private mortgage lender is a single individual working through a lawyer, and managing their own mortgage administration. There aren’t going to be any written policies and procedures to count on so you need to make sure that you are comfortable with the person in charge or they could become the bane of your existence if the project has some unexpected twists and turns to it.
Many times, the builder, developer, or home owner are in a hurry to get the project started and may end up signing up for a construction building loan from someone that doesn’t necessary give them a warm and fuzzy feeling, but is prepared to fund the project.
The thinking that money is money and that the personality aspect shouldn’t enter into it is wrong, or can be wrong depending on how the project goes. If everything happens according to plan, then any lender will likely do. But if there are any hiccups, which are not at all uncommon with a construction project, the personalities involved can either help solve the problems or make them worse.
If you have the time to make a lender selection both in terms of rates and terms as well as project management experience and approach, then I would advise you to sign up for the best overall selection, even if it’s not the best interest rate.
This is yet another reason why you should always consider using an experienced mortgage broker to not only help you locate a suitable construction lender, but help you manage the interface as well so you have one more person in your corner if issues do arise.