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• About Us  • View Testimonials  • Construction Programs  • Construction rates  • Comparing Options  - Loan offers from different    banks  -Construction cost estimates  -Building new or remodeling    VS buying an existing home  -Being my own contractor   VS using a general contractor  - Get Answers  • Educational Resources  - ABC's of Construction    Financing  - Stick-Frame Home    Information  - Log/Timber-Frame Home    Information  - Modular Home    Information  - Lending Dictionary  - Construction Dictionary  • Bank  - Refer a customer for a    construction loan  - Learn more about    construction loans  - Receive consultation on setting    up our own construction    loan program(s)  - Get added to the Construction     Advisors network of lenders  - Get Answers  • Contact US   What is a Construction-Only Loan? A construction-only loan requires separate loans for construction and permanent mortgage. First, the borrower applies for and pays closing costs on the loan for the construction. This loan typically has a six-month to one-year term (however, Construction Advisors Capital, Construction Lending Division offers up to 18-month construction-only terms). Only interest is paid during the building stage, and the entire principal amount is due at the end of the term. The rate of interest is typically based on a percentage range that is tied to prime rate. Next, the borrower must apply again for the mortgage and pay another set of closing costs. Remember that often times a construction-only loan can only be closed on if you have a letter of credit or approval from a lender for your permanent financing. The two loans can originate with the same lender or different lenders. Do I Need a Construction-Only Loan? Today, very few people need a construction-only loan, as the financing for construction-to-permanent loans has become more aggressive (and therefore more attractive). However, there are times that difficult property types or credit situations can force borrowers into a construction-only loan. This is because most traditional lenders will not lend in such situations, and borrowers are forced to use lenders with less amicable lending terms. Although the lending terms for these types of loans are often not that good, it is the permanent loan that borrowers must be more concerned with, as it is this one borrowers must repay over the longest period of time. Bank Financing vs. Contractor "Turn-Key" Projects A contractor "turn-key" project is when a contractor (builder) offers to build a home for a client with their own money, then requires the client to obtain "take-out" or permanent financing from a lender. To do this, the client is charged a premium, even if it is not spelled out in black and white! Contractors also enjoy the fact that they eliminate one more person or company that has construction knowledge from the equation. Some contractors don't want to deal with inspections of their work. Why? Because this way no one with experience can see how good or bad of a job they are performing. With a bank-financed transaction, borrowers get the safety and security of somebody watching out for their interest from a third party perspective, and they get the costs spelled out in black and white. Construction-to-Permanent Mortgage vs. Cash Projects Have you ever gone to the store and forgot to bring enough money, so you had to put some items back? Thank goodness you weren't stuck with having to buy the goods just because you thought about buying them, right? Unfortunately, in many instances, with construction it's a completely different ballgame. Once you get begin a process, there is no turning back just because you figured your costs wrong. So what do you do when you run out of money? Go get more from the bank? No! Lenders like to engage in loans with minimal risk. Construction loans have a lot of risk, and construction loans where work has already begun have a tons of risk. This means that you can almost count on not convincing a bank to lend you money to finish a job that has already started. Instead of diving into a job figuring that there is enough money, borrowers should get a construction-to-permanent mortgage and have money available in advance — just in case. Some banks, like Construction Advisors, offer construction loans that are more like a credit line, where you only pay for what you use. Therefore, borrowers have the flexibility of using as much or as little as necessary, with no worries of paying ridiculous charges for money they will never use. More importantly, borrowers enjoy the strong confidence of knowing they will not leave themselves exposed to a very dangerous financial situation. Experience the Construction Advisors difference today —Contact Us to get started!

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