What is a Construction Loan?
A construction loan is a short-term loan used to fund the construction activity. Whether you're starting with raw land and doing ground-up construction or completing a major renovation of an existing building, you'll typically need this type of loan to complete the project.
How does a Construction Loan work?
To apply for a construction loan, you'll need to provide a good overall project plan. It will need to describe a few key elements: market research, the property to be improved, a cost breakdown for the use of funds, and what the plan for long-term financing is. This type of financing is inherently risky. In the event that there is a default on the loan and the lender takes possession of the property, it's difficult to sell if it's in an incomplete state.
Once the application is approved and the underwriting process has completed, the lender will provide funds to acquire the property and a draw schedule to be used to fund the construction or renovation activity. Typically, lenders will fund construction phases of the project and will only disburse funds up the completion of an inspection process for each phase of construction.
Most often the duration of a construction loan is about 1-2 years. Constructions loans are typically simple, interest-only loans with full repayment due upon maturity of the loan.
Vista Commercial Capital can help you with your Construction Loan needs
If you have a residential or commercial opportunity that you'd like to review with us where a construction loan might be a good fit, we'd be happy to set up some time to have a discussion.