Christian Real Estate Construction Loan
A Christian real estate construction loan is easier to acquire if the borrower has previously done business with a lender. Having experience and paying off previous construction loans can work in a borrowers favor when applying for a real estate construction loan. Before approving funding a bank will want to see projections of how the money will be paid back. Projections help an appraiser to set estimate value of a specific job. A lender may also ask to see a schedule where the borrower shows previous jobs that he has been involved with. A lender may ask for some out of pocket equity to help provide security for the loan. Other concerns may include zoning restrictions, environmental issues, roads, and utilities.
Hard costs and soft costs are both considerations when looking at a real estate construction loan. Hard costs are comprised of building costs for the project that includes the land. Soft costs are all other fees that go towards the completion of the project such as overhead expenses and professional fees. A lender will want to see exactly how much is going to be spent on hard costs and soft costs so that the process of the construction can be monitored in dollars and cents. Soft costs could vary depending upon the condition of the property, if environmental clean up is necessary, or other types of issues prevent immediate building to take place. "And it came to pass, as they journeyed from the east, that they found a plain in the land of Shinar; and they dwelt there" (Genesis 11:2).
A construction budget consists of the cost of the project and how the interest is going to be paid until the project starts making money. If a borrower is planning on building apartments on a certain area of land, he or she may want to opt for financing on the land first and then use the money for the land to start paying on the real estate construction loan until the apartments can be leased or sold. Included in the construction budget should be time constraints on the building and when the money will start coming in from the sale or lease. Doing the building in stages can allow the borrower to complete so many units and have those units sold before continuing the building on the remainder of units. This process allows the borrower to have money coming in to help with repayment of the loan before the construction is actually completed.
A developer of real estate will want to consider all costs when making a budget for a real estate construction loan. Costs that will be incurred for a project would include utilities and taxes, among other things. Banks may not finance but around 75% of the appraised value of a property. An environmental audit may be mandatory if the property is not already zoned residential to make sure there are no contaminates that could threaten human life. Environmental issues can end up costing the borrower if contaminates are found. If they are bad then building will have to be postponed and may be cancelled altogether. If the site is zoned residential and there have been residents on the land then an environmental audit will probably not be mandatory.
Properties that qualify for commercial real estate include apartments, car dealerships, funeral homes, hotels, medical clinics or hospitals, retail buildings, condominiums, and so on. A real estate construction loan may include remodeling, rebuilding, or new construction. Various lenders make applying easy by supplying an application that can be accessed on the Internet. Qualifications will include plans on what is going to be built, what materials will be used, the cost of materials, labor to complete the work, cost of the land, and the costs for plans and permits. The general contractor that will do the job will be required to furnish the lender with a resume, and a builder's application. The lender will usually do a credit check on the contractor. Contractors usually have to be re-qualified every six months.
The borrower should have a written contract with the builder before applying for a real estate construction loan. The contract should clearly state the responsibilities of both. The scheduled dates for construction to start should be included in the contract as well as the date of scheduled completion and proposed date of occupancy. Line by line breakdown of costs should be included as well as the amount that will be provided to the builder upon completion of the project. All parties should be listed in the agreement including the architect, subcontractors, contractor and owner. The responsibility of each party should be spelled out in the contract and should be signed by all parties.
Some lenders have contact information about reputable contractors. They can also provide information on contract plans. Some states require that contractors and builders are registered with the state. Many lending institutions will not do business with contractors and builders on a real estate construction loan unless they are registered. Make sure the contractor has experience in various building projects including building from the ground up. The contractor should be willing to supply an itemized list of materials and the cost of materials used in the project. A borrower should make sure that the contractor has liability insurance and workers compensation insurance. In addition, the borrower should have the building inspected as completion takes place by the county or city inspector before paying the contractor for the work.
Christian Land Construction LoanLenders that offer a land construction loan can help owner/builders realize the Great American Dream. Building and owning a home is the epitome of living life in America; and everyone wants a corner of the country they can call their own. Nothing can compare to having a hand in the design of a personal home, choosing interior and exterior finishes, and more importantly, residing in a space custom built to individual tastes never before occupied by another living soul. But once the site has been located and the ink is dry on the building plans, it is time to look for a lender willing to loan money to make a dream home a reality. Homeowner hopefuls will have to find a lender that can combine the purchase of a lot with the cost of constructing a new home. In a residential development, land/home packages are easily bank financed, since the developer has already purchased the property, secured access to city or county water, sewage, and utility systems, and adhered to all zoning ordinances. Borrowers are essentially buying the building lot and new home from the developer or real estate broker and need not worry about finding separate loans for property and construction. But potential home owners who choose to find a site and build on it themselves will have to qualify for a land construction loan.
Some lenders offer short-term financing to qualified borrowers at nearly 95% of the cost to purchase a lot and construct a new home with a small percent down. Land construction loan packages not only pay for the building lot, but also materials, subcontractor labor, fees, closing costs, and permits. The owner/builder usually acts as a project manager and manages building a new home without having to pay a general contractor. The savings realized by self-contracting keeps costs down and builds up equity in the home. Do-it-yourself homeowners have the satisfaction of constructing a lifelong dream for less than it would cost to hire a GC to oversee the process. Of course, owners who don't feel comfortable supervising could easily compute the cost of hiring professionals to see that the project proceeds according to plan, within budget, and compliant with codes. When it comes to building the souls of men, God is essentially the General Contractor who molds and shapes mankind after the image of His Son, Jesus Christ. "For we are his workmanship, created in Christ Jesus unto good works, which God hath before ordained that we should walk in them" (Ephesians 2:10).
Financing institutions which offer land construction loan packages help borrowers shop for the best repayment terms at the lowest interest rate. Once the project is completed, the home is appraised at the current market value. The amount of money spent for the purchase of the lot, plus the cost of building, including labor, is deducted from the home's value. The resulting figure is equity, which can be used as a bargaining tool for homeowner/builders to obtain mortgage financing. For instance, an owner plans to build a 2,500-sq. ft., three-bedroom, two-and-a-half bath home on a piece of property which sold for $50,000. The estimated cost to build the house, including materials and labor, is $100,000. That's a conservative estimate, but the owners plan to contribute some sweat equity, doing a lot of the work themselves. A lending institution agrees to lend the owner/builders 95% of the amount needed to complete the home, or $142,500, with the owners adding another $7,500.
Given some contingencies, the project ran slightly over budget and totaled $165,000. Upon appraisal, the 2,500-sq. ft. home is found to be worth $350,000 at the current market value. The equity comes to $185,000, less closing costs and land construction loan finance charges. The owners can now approach a bank with a home worth $350,000 with $185,000 equity and apply for a long-term mortgage, which will pay off the land construction loan and enable them to make lower monthly payments over the course of 15, 30, or 40 years. The beauty of a land/home package is that the owners don't have to spend a ton of money out of pocket to achieve a lifelong dream. And instead of waiting 5, 10, or 15 years to build up equity, the interest is already built in the moment construction is completed.
Christian lenders usually offer terms and interest rates for an individual land construction loan based on borrower qualifications, building plans, and sites. Online and local lenders can shop financing agencies around the country for the best terms for borrower/builders seeking to fund projects. The key for any self-contractor/owner is to, first, visit with city or county building inspectors, zoning commissions, real estate agents, and utility companies to ensure that proposed projects meet all code requirements and that access to city and county sewer, utility, and water systems is readily available. Having a soil test done before excavating will ensure that the lot is stable enough for building purposes. Owners should also check plats and drawings to locate easements, plan for proper drainage, and ensure access to connecting public roads. Local realtors and brokers can give owner/builders a good estimate of the current market value of property in surrounding areas, as well as plans for future development which may detract from or enhance future values. Calculating all these additional expenses is a necessary step before approaching lenders for a land construction loan. If owners do their homework, financing the American dream should be a relatively painless process.