“The Most Effective And Lowest Risk Construction Loans Aren’t Necessarily The Ones With The Lowest Interest Rate”

When you go to buy a house, it makes sense that lower rate mortgages are going to be better than higher rate mortgages in almost all cases. Less interest cost means less strain on your cash flow, allowing more available funds for other spending requirements.

The same can’t always be said for construction loans for a very simple reason. A residential home loan is for an existing piece of real estate with a known and established market. A construction loan is for a work in progress project that may or may not end up being completed as projected.

Construction loans carry considerable completion risk with them that may need to be covered off in a number of ways. For lower cost forms of construction loans provided through banks, one of the risks is the banks conservative approach to loan administration that can result in a slower and more careful advancement of the funds than the project requires or expects. To offset this risk, the borrower or builder needs to have a secondary source of funds available to deal with any draw reductions or advance delays.

Higher interest rate construction loans that tend to be less administratively intensive are not automatically going to be a better fit either. Private mortgage construction loans provided by individuals can have just as many problems as a bank construction mortgage provided by an institutional lender.

The best construction loans tend to be a combination of rate and lender/broker construction experience that will best suit the project in question. The more straight forward the project, the less inherent risk and therefore the less need for working with a mortgage broker and lender combination that are more equipped to deal with the unplanned and unexpected twists and turns associated with construction in general.

With more involved projects, it becomes more important to make sure that the lender and broker combination you’re working with are well suited to your project, which can make all the difference if and when issues arise.

Sometimes paying a bit more on rate for the right lender match can be a bargain in the making. It just may be hard to make that determination at the outset of the project.

For assistance in locating, selecting, and securing construction loans that are going to give your project the highest expected probability of success, please give me a call and we can go through your requirements together.

Click Here To Speak With Construction Mortgage Broker Joe Walsh