Things You Should Know About Private Construction Loans

The real estate market is a great way of making money and securing your financial future. Whether you’re just beginning as an investor or have a few completed projects, here are five key things you must keep in mind when seeking new construction loans from hard-money lenders:

Location

Location is a key to securing your private money construction loan. Make sure that your lender is comfortable with your project’s location. If it is a viable and profitable project, your lender will be more encouraged and be more receptive to approving a loan.

Project Planning

Your project planning is a key factor in determining if your private money construction loan application will be approved. Make sure that you have covered every detail of how your completed project will turn out. You should also make sure that you have a reliable and qualified contractor to help you with the planning stage. This critical step also helps you formulate a budget to ensure the completion of your project.

Skin in the Game

Any lender ready to consider a private money construction loan will want to make sure that you as an investor are also prepared to put some financial backing into the project as well. By having your own money readily available as backing can show the lender that you serious enough to risk your own money to get the loan that you need to complete the job. Some lenders may approve funding to as much as 70 percent loan-to-value of the appraised value.

Down payment

Make sure to ask about down payment requirements for your project. Depending on your lender, you may have no down payment or it may be as much as 10 percent. Be aware of what is expected and base your decisions to include any sort of down payment that may be necessary to make your investment project a reality.

Rates and fees

Rates and fees will vary from lender to lender. You should make yourself generally familiar with rates and fees. You need to show your lender the profits that they can make so that you have a better chance of securing the loan. With hard money lenders, your chances of approval may increase but your rates and fees will be higher than that of the traditional lending institutions. Hard money lenders may be a good resource, especially for those with less than perfect credit and a lower down payment.

For real estate investors it is just as important to be prepared to secure the loan as it is for completing the project. Be prepared and make yourself and your project as attractive to the private money lender as possible. It is just a matter of being well informed and willing to put in the work to make your dream of real estate investing a reality.