Construction Financing: How Does It Work?

 

Building construction

Building a new office is a great way to expand your business. However, construction projects are costly and can burden you financially. Fortunately, construction loans can help business owners cover the costs of labor, materials, and land from start to finish.

Types of Construction Loans

Construction loans are short-term loans that can help you buy land, draft plans, take permits, and pay for materials and labor. You can also use them to access contingency or interest reserves if your project turns out to be more expensive than planned or to avoid paying interest during the project.   

How does it Work?

A construction loan covers the entire building process and is issued over 10-16 months. Once the construction is complete, the loan may convert into a permanent mortgage. Construction loans aren’t secured against collateral, making their approval process more complex. Before consulting a financing company, you must examine your financial situation and inspect your architectural plan. Your lender must also know your construction’s estimated budget and duration.

Once your lender approves your application, they’ll pay your builder in installments upon completing various construction stages. Each installment is scheduled, depending on your construction timeline. Your financing company may also send someone to inspect your construction status before making each payment.

Borrowers will only pay interest on each installment instead of on the entire amount. If your lender doesn’t allow you to convert your loan into a mortgage following construction completion, you can apply for a mortgage loan to repay the construction loan. The three types of construction loans are:

  • Construction-only loans – requires full loan payback upon project completion.
  • Construction-to-permanent loan- construction loan is converted to a mortgage loan upon project completion.
  • Owner-builder loan- is paid to the building’s owner instead of the third-party contractor.

Get quick construction loans across the US from Global Capital Partners LLC. We’re a reliable financing company and can support your construction project amidst the rising inflation. Contact us today to learn more about our services.

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