Construction Loan Articles

Explains construction loan rates

A contingency is an addition to the cost breakdown, usually based on a percentage of the hard costs, to be used to fund changes during the build.  For example, the borrower decides half way through the build that rather than granite tile, they want granite slab in the kitchen.  They can either pay that out

An interest reserve account is another line item in the cost breakdown that is used to pay interest during the construction period.  A construction loan with an interest reserve account essentially uses borrowed funds to pay interest on itself.  Interest is estimated based on the expected rate during construction, the expected construction period, the loan

All bank construction loans disburse money subsequent to the work being done, and interest is charged just on the amount disbursed.  Some private money construction loans charge interest on the entire loan amount from the date of funding, but banks can’t do that.  In the past, there were some construction lenders who would impose a

For a construction loan, the appraisal is done from the plans and cost breakdown.  To call it a “future value appraisal” is a misnomer in some ways since the comparable sales reflect the current market, and no attempt is made to peek into the future.  The appraised value should reflect what the property would be

To be an approvable builder, the builder must be a licensed GC in the state where the property is being built.  They must have “happy homeowners” for references, presumably based on jobs similar in scope to the new construction project for which they seek approval.  Vendor and bank references are sometimes required as well.  A credit

There are three basic approaches to home construction, site built, modular and manufactured.  Site built homes, also known as “stick built” in the industry, are constructed entirely on the building site.  Site built homes could be a panelized home, or a kit home, such as a cedar home or a log home.  In the case

Construction loan programs 1, 2 and 3 require a fixed price contract with the builder, and a cost breakdown to match.  The concept of fixed price seems self-explanatory.  Any builder profit is built into the bottom line.  A “cost plus contract” involves the builder saying essentially, I will build the house for whatever the subs