Construction Lending in St. Louis, Missouri
By Dave Puzniak
The dream of building your own home from the ground up typically ends up with a construction loan.
For an individual, construction loans can be challenging to obtain as they have special guidelines and include monitoring to ensure timely completion so your repayment can begin promptly.
Construction loans are often shorter term loans with a maximum of one year, along with variable rates. In addition, these loan rates are higher than rates on permanent mortgage loans. In order to gain a loan approval for a construction loan, lenders will need to approve a construction timetable, detailed plans, and a realistic budget. Once approved, the borrower will be put on a bank draw schedule which follows the project’s construction stages and will typically be expected to make only interest payments during the construction phase. As funds are requested, the lender will inspect the property to monitor the job’s progress. Upon completion, which is often defined by a certificate of occupancy or full payment of the contractors and their lien releases, the borrower’s liability on the loan will then be refinanced into a standard mortgage product.
Recently, lenders have been combining both the construction and permanent financing into a single 30-year loan with only one closing. This is called construction-to-permanent financing. The bank’s higher loan to value risks in construction-to-permanent financing transactions will typically require the borrower to make a larger deposit. The lender may only provide 80% of project costs or possibly less. If you own the land on which the construction will occur, that can provide a portion of the equity requirement.
Construction loans represent a fairly small percentage of home loans made. Construction loans also provide a greater risk for the banks, so it is typically not a financing type lenders aggressively advertise. You will need to do your homework with any lender. Make sure to include smaller regional banks and credit unions to determine the loan which best meets your construction loan needs.
Senior Mortgage Banker
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