You can find multiple loan options when buying a new house, but what if you want to build your dream home from scratch? Finding a hard money lender to finance the construction of your property can take time and effort, but a hard money construction loan can help you build your dream setup.
Read on to learn more about hard money construction loans and the steps to receive them.
What Is a Hard Money Construction Loan?
Hard money construction loans are short-term loans used to finance the construction or renovation of a property. Private lenders or companies usually provide this type of lending. For a construction loan, the lender cares more about the property’s value than the borrower’s credit score.
How Does a Hard Money Construction Loan Work?
Unlike traditional bank loans, hard money construction loans depend on the property’s value. The lender will typically lend up to 70% of the property’s value, although the percentage can vary depending on the lender and the project.
A first or second mortgage on the property secures the loan. The borrower must provide a down payment of at least 20% of the project’s total cost. The lender then releases funds in stages as the construction progresses. This process is known as a draw schedule. The borrower must prove the work has been completed at each stage before the lender releases further funding.
How to Receive a Hard Money Construction Loan
There are a few steps to receiving a hard money construction loan:
- Find a reputable hard money lender: Look for lenders with experience in the real estate industry who have successfully financed similar projects.
- Submit a loan application: Provide detailed information about the project, including plans, timelines, and budget. The lender will evaluate the project’s potential and the property’s value to determine their willingness to finance.
- Provide collateral: The property being built or renovated is collateral for the loan. The lender will assess the property’s value and condition to determine the loan amount.
- Agree on loan terms: The lender will provide a loan agreement with the terms, including interest rates, fees, and repayment terms. Be sure to read and understand the contract before signing. The funds will be disbursed once the loan is approved and both parties agree to the terms. You can then use the funds and complete the project within the loan term.
What Are the Advantages of a Hard Money Construction Loan?
Hard money construction loans have the following (and more) advantages:
- Speed: The lenders can fund loans quickly, often within a matter of days. This can be vital for real estate investors and developers who want to start their construction projects soon.
- Flexibility: Hard money lenders are more flexible than traditional banks regarding lending criteria. They are willing to take on higher-risk projects that traditional banks may not consider.
- Eligibility: Borrowers with a poor credit history are eligible for a hard money construction loan.
- No prepayment penalties: Hard money lenders do not typically charge prepayment penalties, which can be beneficial if the borrower wants to pay off the loan early.
If you’re looking for a reliable and experienced hard money lender to help finance your upcoming construction projects, look no further than GW Private Capital, Inc. Our team of experts can provide tailored loan solutions to meet your unique needs. Contact us today to learn more about our loan services and how we can help you achieve your investment goals.
