Construction Loan Rates
Shopping around for favorable construction loan rates is an important step in the process of building a home. For many people, building a dream house is something they think about and plan for a long time before finally having the financial means to make the dream come true. A family dream home will most likely be the most expensive purchase a couple will ever make. Containing costs doesn't necessarily mean that quality has to be sacrificed, but keeping those costs under control requires planning, discipline, and know-how. There are many decisions that have to be made along the path from architectural drawings and blueprints to that exciting day when the family moves in with all their belongings. Perhaps they've visited the construction site periodically and seen the progression from dirt lot to framing to almost finished rooms. It's fun to watch the roof trusses being set on top of the exterior framework and seeing the progress as cabinetry, countertops, vanities, and carpeting get installed. But exceeding the budget can turn a longtime dream into a financial nightmare. By researching different mortgage products and varying construction loan rates before entering into any building contracts, the potential homeowner can be confident that money is being saved in interest costs from the very beginning of the process. Jesus once questioned those following him, "For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it?" (Luke 14:28).
For the most part, building loans are short-term, for perhaps six months to a year, and usually are interest-only loans. This means the borrower pays only the interest on the principal amount being borrowed to build the house. Comparing the construction loan rates offered by different banks and other financial institutions is vital to finding the best financial package. Even a quarter of a percent difference from one interest rate to another can mean substantially more money being spent on interest or being kept in one's own pockets, perhaps to be used for a new sofa or a master bedroom suite. In many cases, the potential homeowner applies for a construction loan which the builder uses as a line of credit. As the cash is needed to pay various subcontractors and other expenses, the builder takes a draw on the loan. For example, let's say that a couple applies for and are approved for a $200,000 loan to build their dream house. The couple and the builder negotiate a draw schedule which allows the builder to take significant amounts of that cash on a periodic basis to pay for the building costs. The couple pays interest only on the amount that has been taken by the builder. Continuing the example, let's say that the builder makes an initial draw of $80,000. The couple pays the interest on only that $80,000. Later the builder takes another draw of $40,000 for a total of $120,000. The couple is now paying the interest on that amount. It's easy to see how important construction loan rates are as they affect the amount of the monthly payments that the couple is making to the lending institution.
Not all scenarios are like the one above. When a builder is developing a community, he often works with a specific lending institution. To build a home in that community, the buyers may not have a choice of construction loan rates. Instead, the lending institution may only offer one rate. Even so, this should not necessarily be a deal-breaker for the couple. The builder wants people to buy his homes so the lending institution's rates should be competitive. Otherwise, potential buyers will go to the development down the road and purchase a home. An advantage to buying a home in this type of situation is that the construction loan often converts to a permanent mortgage. Instead of applying for, providing documentation, and paying the fees for both the construction and then a separate mortgage, couple only needs to make one application. Once the house is built and a certificate of occupancy has been issued, final documents are signed and the mortgage, along with an amortization schedule, takes the place of the previous building loan. The lending institution is often able to offer different types of mortgages with various rates that can be locked in when the contract is initially signed. Some lenders will even offer a float-down feature so that the couple can take advantage of any decreases in the mortgage rate that occur while the house is being built. In these types of scenarios the construction loan rates are in effect only during the building process.
Potential borrowers can take steps before beginning the application process to ensure they are eligible for the most favorable construction loan rates. For example, the couple in the above example should get copies of their credit reports from the three major credit reporting agencies: Equifax, TransUnion, and Experian. Under federal law, everyone is allowed to receive one free copy of his or her credit report from each of these three agencies at least once a year. A small fee is usually required to get one's credit score, but most financial advisors suggest that individuals obtain the score before entering into a major purchase such as a house. The couple will want to take care of any mistakes on the credit reports and to take care of any overdue bills. If the score is lower than it should be to qualify for the most favorable construction loan rates, the couple should do what is needed to raise the score. This may take some time to accomplish, but will save money in the long run. By doing the necessary research and taking the time to lay a good financial foundation, the dream home will be exactly that for years to come a place for a family to make memories that will last a lifetime.
Commercial Interest RatesFinancial institutions establish commercial interest rates according to a number of varying market conditions. These loans are generally used to help businesses grow and function and are very important to a healthy economy. Equally important are lending opportunities that are made available to brand new companies that are trying to get a foothold in a competitive marketplace. The rate or fee that is associated with any lending agreement can hinge on many things including the amount of money that a business is able to put down on a loan. Obtaining low commercial interest rates can mean the difference between success and failure for both new and existing companies. Many lenders require down payments of around twenty percent. Other factors could include the overall health of the business and the prospect for future growth. Lending terms can vary as well. Some loans will cover a relatively long period of time while others will be more short term in nature. Construction loans, for example, will generally have a shorter life. Financing for commercial real estate might cover a longer period of time and may also come with a lower rate. Loans that are obtained for business purposes will usually be much larger than traditional private lending opportunities. This means that the terms of the loan and the qualifications that are required of potential borrowers will be very different. Newer businesses can expect to pay a higher interest rate than older, more established companies. This is because lending institutions may feel that lending to newer companies presents a higher degree of risk.
Like commercial interest rates, loans that are used for business purposes can vary depending on the needs of the individual company and the amount of money that is being borrowed. Businesses that have a solid credit rating will usually be able to attain a lower rater of interest than those with poor credit or little in the way of credit history. When deciding whether or not to approve a loan, commercial lenders will apply certain evaluating tools. These tools will help them determine the likelihood of a company paying back the loan. A lending institution will also take into consideration whether or not the property that is being purchased, if real estate financing is sought, is worth the price that is being asked. A business' debt to income ratio is another important determining factor in eventual loan approval. Businesses usually require a much larger amount of funding than private borrowers. This can have a major impact on the terms of the loan, the standards of approval, as well as commercial interest rates. Lending institutions will usually hold commercial borrowers to a much higher standard than private borrowers. In addition to a company's credit history, future prospects, and debt to income ratio, the overall performance that a business exhibits will be evaluated. The rates and terms that may be offered for business loans will all hinge on how a lending institution determines the level of risk that is involved in providing financing for a specific company.
When obtaining financing for real estate that will be used for business purposes, there are specific criteria that will be used to determine commercial interest rates. If office space is needed, business owners will want to make sure that they understand this criteria in order to obtain the best lending terms. For example, organizations that intend to rent out part of the space in a commercial real estate purchase to other individuals or companies will need to clear this through a potential lender. Some lenders require that a borrower occupy a certain percentage of the property in question before they will grant loan approval. In most cases, if a borrower is planning on utilizing at least fifty one percent of the office space, they may qualify for lower commercial interest rates. If the real estate that is being purchased is for a restaurant or a hotel, a completely different set of criteria may apply. In some cases, this could be due to the higher risk that may be associated with a particular type of business venture. If the nature of a commercial property indicates that any attempts to sell the property at a later date could prove difficult, a lending institution may regard this as an extra risk factor. Interest rates and fees may be higher in this case. Banks and lending institutions will always be looking at how they will recoup losses should a borrower default on the original loan.
In addition to traditional lending sources, government loans and grants may be available, particularly for small businesses. These financing opportunities will often offer much lower commercial interest rates. The availability of business financing is very important for growing companies. Obtaining this financing can ofter be a source of real stress for budding entrepreneurs. For believers, the ability to trust God and not succumb to fear is promised in the Bible. Behold, God is my salvation; I will trust, and not be afraid: for the Lord Jehovah is my strength and my song; he also is become my salvation. (Isaiah 12:2)
The procedures for gaining approval for small business loans can be somewhat different than those that apply to larger corporations. The commercial interest rates may vary as well. However, there are many considerations that will remain the same. Credit ratings and future prospects are important considerations whether a company is large or small. Regardless of the size of an organization, understanding all terms of lending before signing any loan agreement is crucial.