Construction lending can be a challenge for all parties involved. Construction loans are complex and require careful planning to ensure your clients’ success. The construction process is vulnerable to disruptions from changing schedules, weather, material shortages, and other unexpected problems. Construction contractors can experience cash-flow problems during the life of the project due to unforeseen expenses or delays in obtaining necessary permits or governmental approvals.
Follow these tips for Successful Construction Loans:
1. Identify the Construction Loan Type Most Suited to Your Client’s Needs
There are two main types of construction loans you can offer – fixed rate or variable rate construction loans. Fixed-rate loans provide stability in monthly payments – but your loan will cost more since it must reflect extra funding required to cover interest rate risk while the project is under construction. Construction loans with a variable interest rate require a little more work, but if you have the time it can pay off in the long run – and sometimes be better for your client.
2. Review Construction Loan Documents Carefully Before Committing to Construction Loans
You may have questions or concerns about any documentation that could be included in your loan documents, so take some time before finalizing anything to be sure all is as expected. Review funding sources, the timing of disbursements and closure dates as well as expense reimbursement policies. Discuss options with your borrower when there are differences between expected performance and terms outlined by the contract. Make sure lender rights are clearly documented in case fees apply for early termination of Construction financing. Don’t forget to review Construction Loan Disbursement Schedules to make sure that your Construction Loans are properly structured for the borrower.
3. Educate Your Construction Loan Borrowers on Construction Contractual Provisions and Requirements
It is also helpful to have a Construction loan release schedule in place before you begin working with Construction loans. You should go over all aspects of their contract including material costs, labor rates, contingency amounts, and any other requirements that may change from time to time during the project. Discuss issues such as change orders and how they will be handled, insurance requirements, and building permits. Open communication when starting Construction financing helps prevent surprises later, which could be especially costly if you are dealing with substantial penalties for early termination of Construction financing.
4. Brief Construction Contractors on Construction Financing
Discuss Construction Loan Construction financing requirements with your Construction loan broker. Make sure they are educated in the process and what to expect from Construction loans since not all Construction loan providers are created equal. You will want to discuss the construction financial closing schedule, draw requirements and target dates for major milestones such as pre-construction meeting dates to be sure that the Construction lending process is properly managed.
5. Communicate With Your Construction Loan Borrowers About Progress During Construction Loans
Regular communication is important throughout Construction loans. Let your clients know if milestone deadlines are approaching and how their Construction financing project is progressing. Discuss with the potential issues or problems along the way so you can work together on solutions while there’s time to make Construction contractors are often working with a tight Construction loan Construction financing schedule so keeping Construction project delays to a minimum is important, especially when dealing with Construction contracts that could result in costly penalties for non-performance.
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