FEATURE
3 Mistakes to Avoid with Construction Loans By Paul Wirth, Jcap Private Lending
C
onstruction
loans
are
a reimbursement schedule, until the home is complete. Something to keep in mind is that the borrower’s experience comes first and foremost for obtaining a
a
selling, get a temporary Bridge Loan.
smart way for a borrower
Both Construction Loans and Bridge
to quickly get funds to build
Loans
normally
require
interest
a home. However, there are some
only payments and, in some cases,
things to look out for. A Construction
allow for interest reserve accounts,
Loan is a short-term loan to fund the
eliminating monthly payments for
building of a property. Construction
the borrower.
Construction Loan. If the borrower does not have sufficient experience, lenders borrower
will to
likely
require
partner
experienced
with
the an
Builder/General
Contractor in a Joint Venture. A broker should always qualify the borrower’s experience by asking
Loans are usually given to builders
for a resume of projects completed
or homebuyers who are doing a Fix-
Construction
and-Flip, building a spec home, or
required to be in 1st Position (behind
their dream home. While they are
no other mortgages). The new loan
typically short-term loans (usually
pays off any outstanding loans and
for a period of one year) other
then the remainder of the funds
headaches for all parties down the
finance options are available when
are deposited into a Construction
line. It is always better to be upfront
the house is complete. The borrower
holdback account or is set up like a line
with the lender about experience
can either refinance the construction
of credit. Funds are then distributed
to avoid any potential issues with
loan into a permanent mortgage or if
to the General Contractor, usually on
securing the loan.
18 Originate Report | October 2019
Loans
are
usually
that they own. It’s easy to include experience where a borrower was a partner in a project, but sometimes that is not sufficient and can cause
