People often ask me why construction loans are so difficult? One would think this is a question a potential client, building their first home, or maybe a Realtor new to the construction arena would ask. Unfortunately this question I get asked most by colleagues in my profession. Loan officers, processors, and senior loan managers are just a few that are confused by construction loans.
Let me give a little insight to why construction loans are very difficult to figure out (even for those in the mortgage profession).
There are more variables to consider.
Is the land already owned? If so when was it bought, how much, and what is the value?
What are the soft construction costs?
What are the hard construction costs?
Have any items been prepaid?
Do you have a General Contractor?
Is he approved to business with the lender?
Do you have plans?
Permits?
Any work started?
Do you have working capital?
Do you need an interest reserve account?
Do you need anything refunded at close?
Do you know how many draws you need?
This list could go on and on. My point is the amount of additional work that a construction loan requires is much greater than your last purchase or refinance. Keep in mind the mortgage a typically person completes has close to 35 people touching that transaction. With a construction loan there are even more associated with your file.
If any of this has you scratching your head you are not alone. Construction loans are dominated by a few select individuals because they are a special transaction. If anyone needs any more insight to my comment please let me know.
Best of Luck,
Troy Schuricht
http://www.communityfirstfinancial.com/
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