A Construction loan also called Construction financing or Advance Construction financing is a construction loan that is about to be constructed. The lenders provide Construction loans for their customers who are constructing anything from residential homes, apartments, businesses, and so on. They give Construction loans to the project owners as Construction funding(s) for them to complete their projects in advance of paying back the lender with income generated by the soon-to-be-completed construction project.
The Construction loan broker act as middlemen between the Lender and customer of Construction funding (the project owner). Construction loans may have some unique risks involved that require Construction funding specialists to ensure a smooth flow of Construction funds from the Lender’s account to the customer’s account. These risks include:
1) Late payments or non-payments by the project owner:
This is one of the most common risks involved in Construction loans and should be handled well by the brokers. They get approval from Lenders to waive late fees, penalty fees, and any other actions against customers that are deemed necessary if they fail to make their monthly installments on time.
2) Project delays:
Sometimes projects are delayed because of change orders, unforeseen problems, environmental issues, etc; The loan Mortgage broker Melbourne has complete control over such situations and ensures that things go smoothly without further delay in completion dates.
Unfortunately, almost everyone who has access to money can be tempted by it and even invest in illegal activities. Therefore, the Construction loan broker ensures that a third party monitors the flow of construction funds from the Lender to the customer and makes sure the project owner has not embezzled any money along the way. As you can see, these are only two of several risks involved with getting Construction funding. These risks have been increasingly reduced, but still very critical issues one needs to pay attention to when considering financing your project with Construction loans (Construction funding).
4) Financing amount:
Most of the time when applying for construction funding, the borrower and lender do not know exactly how much financing the borrower should get. This is because before a loan officer can determine that, he/she must know how much money will be spent on labor, material, and equipment during construction. As such, what the lender usually does is give an offer to loan out a certain amount with no upper limit in terms of total value(loan amounts). The total value refers to the value of a home after it’s complete.
5) Loan quality:
Construction loans pay off early if the borrower is able to prove that the project will generate enough cash flow upon completion. In case of default, the lender can lose money in more ways than one. For example, he may not get his deposit back, or worse still; he may have to suffer a loss on new or used equipment as well.
The above-mentioned risks have left some Lenders who are unwilling to lend Construction funding directly to customers, especially if your business is relatively small with limited assets. For someone like you who needs Construction funding, you must go through a Construction loan broker who will take care of these risks by signing a contract with you that gives him/her power from the Lender to act on their behalf in your case.