How to Get a Construction Loan

A construction loan can be the gateway to what is many people’s dream scenario—building their own home. It’s a short-term financial agreement between you and the lender, with it generally being expected that the work will be carried out and certified within a year. 

You can also get a construction loan for a house remodel or renovation. While you might see a lot of info online that suggests this isn’t the best way to finance such a project, this isn’t strictly correct. For many borrowers, a construction loan might open up greater lending potential because it’s based on the after-repair value of the property.

However, as with any financial obligation, you should always carry out due diligence before you commit and sign on the bottom line…

Everything You Need to Know about How to Get a Construction Loan

• A quick overview of what a construction loan is
• Determine your budget and collate the required documentation
• Alternatives to a traditional construction loan

A quick overview of what a construction loan is

A construction loan is a short-term agreement between you and a lender to either build a home from scratch or carry out (usually) some major renovation work. It’s used to cover the land purchase, building permits, materials, and labor.

After approval, you’ll access the money at agreed intervals during the process or, very often, they’re paid directly to the building contractor. At the end of the project, a certificate of occupancy is issued. At this point, the borrower then takes out a traditional mortgage (generally at a far lower interest rate) that repays the construction loan and covers the cost of your new home.

Determine your budget and collate the required documentation

Making a detailed budget is a key stage of securing a construction loan. Potential lenders need to see the fine details that cover every aspect of the build. For a traditional construction loan, you’ll need various documents to prove your creditworthiness, including:

• Proof of income
• Tax returns
• ID
• Credit score

This is in addition to all the documentation surrounding the construction work. Collate all of this into a professional project plan. This should include the timeline along which you envisage payments will need to be made, as well as a detailed cost breakdown.

Alternatives to a traditional construction loan

If you’re looking to carry out a property renovation, as opposed to a new-build, then you should also research fix & flip loans. These come in different forms, often having lower interest rates than a construction loan.

Examples include:

• HELCO: This stands for ‘home equity line of credit” and is for those who already have at least 15% of equity in their main residence.
• Business Line of Credit: For those who already have a few fix & flips under their belt.
• IRA or 401(k) loan: The loan is against your retirement pot, with profits (from flipping the property) going back into the account. It’s only suitable for those who’ve amassed a good amount of collateral but won’t be retiring any time soon.

Other options include a personal loan or seller financing. The loan that best suits your requirements will be wholly dependent on the circumstances, so be sure to do your homework and research potential lenders carefully.

Contact BRRRR Loans Today to Understand How to Get a Construction Loan

BRRR Loans provides construction loans, DSCR loans, fix & flip loans, bridge loans, and commercial loans for property entrepreneurs and businesses across the nation. We’ve got some of the best interest rates and close rates in the business, with borrowers returning to us time and time again to progress their property portfolios.

Whether you’re an experienced developer or a first-timer, we can help. Head to 

https://www.brrrr.com and speak to us today for a no-obligation chat.