How to Asses and Compare Construction Loan Terms?

Question

Good afternoon everyone,

I currently have new construction coming up where I am sourcing construction loan quotes from multiple lenders. I'm receiving multiple offers ranging from 11.75% to 12.25% with points varying from 2% to 3%. I have one at 15.375 with no origination fee. How can I properly asses each loan term and compare it to the others to ensure I'm receiving the best deal?

Ed O. · Answer

Wow, those terms look prohibitive.

Have you checked with a bank? I do realize bank financing isn't available to everyone for a lot of different reasons, but it would seem really hard to make a deal work with those terms.

JooYung Choi · Answer

Hey Fernando!

Some questions to consider to help determine the best lender for your situation:

What's the loan term length & down payment needed? - 9 months at 12% is different from 12 months at 12%!

How many months do you expect you'd need to complete the project? -if you can do it quickly, maybe the one with higher interest / no origination fee? Gotta do the math!

Can you extend the loan term if needed?

What's the draw process / fees and how quickly will you have access to the funds?

Dutch or Non-Dutch Interest?

Definitely read all their reviews, see how they communicate and look into the company's reputation.

Hope this helps!