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How Much Is A Construction Loan Down Payment
Construction Loan Down Payment
To the extent you are seeking more information about obtaining a construction loan, it is highly likely that you may have an interest in trying to figure out what kind of construction loan down payment you will need to make. As you may or may not know, your construction loan choices include the 30 year fixed, 15 year fixed, 1 year ARM, 3/1 ARM, 5/1 ARM, 7/1 ARM, 10/1 ARM and to a certain extent — interest-only loans. Although, many of these interest-only loans have been phased out in recent years. Generally speaking, your construction loan down payment will equal approximately 20% to 30% of the total amount of money you are seeking to borrow.
A Construction Loan Down Payment Can Be less Than You Think
There are no real hard and fast rules — some lenders have a better working relationship the individuals and companies who are seeking loans from them and so they may require less of a down payment. This is especially true in a situation where the lender does not perceive that there will be a great deal of risk with the construction project. At a minimum, you are likely to be expected to pay a 10% construction loan down payment unless other arrangements are made.
Given the fact that interest rates remain at historically low levels, there is a great deal of interest in trying to lock in a fixed loan interest rate. This makes a lot of sense, but it also probably makes sense to pay a reasonable construction loan down payment so that you have some equity built into the project. You do not want to find yourself in a situation where you are simply paying interest that is variable and that is likely to go up in the years ahead as interest rates rise.
Shop For Your Construction Loan Down Payment Amount
It is certainly recommended that you shop around to get the very best construction loan deal possible, including paying the least amount of money in the way of a construction loan down payment. This will give you more working capital to devote to the actual construction work and will help preserve whatever cash you may have set aside for the work that is going to be done.
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Why To Apply For A Construction Loan Now
Construction Loan Interest Rates
One reason why it makes sense to apply for construction loan now is because interest rates are at all-time lows. To the extent you have excellent credit, there is a very reasonable chance that you will be able to obtain a construction loan from a traditional bank. They compute the interest rate that you are charged based on what the United States Federal Reserve has determined to be the base interest rate. You can think of this base interest rate as the first number that is used to compute the interest rate that you will ultimately be paying.
The bank then traditionally places a few extra interest rate percentage points on top of that base interest rate so that they can earn a profit. In case you are wondering whether or not you can obtain a loan directly from the United States Federal Reserve, that is not a possibility. However, there are many situations in which people who are applying for construction loan may not necessarily have the best credit. In these cases, these individuals may find themselves shut out from the credit markets entirely.
A Non-Bank Construction Loan
In a situation like that, where a traditional bank will not talk to you, it makes sense to explore whether or not you can do business with one of the new finance companies that have become very popular in recent years. These companies have raised the money independently. That means they are better able to establish their own credit criteria. Whereas a traditional bank needs to have very strict lending standards, one of these new finance companies can be more flexible and work with you on a one-to-one basis to determine whether or not you are able to obtain a loan from them.
You might be wondering how one of these finance companies would be able to offer you a construction loan when a traditional bank turns you down. Well, what you need to understand is that the finance company will take the base interest rate charged by the United States Federal Reserve and add more interest rate percentage points on top of that than a traditional bank will. To be clear, it is still a good time to apply for construction loan right now given the fact that base interest rates are so low. However, you need to realize that you will be paying more in the way of interest when you do business with one of these finance companies than you would if you were able to do business with a traditional bank.
Getting A Construction Loan Now
Bearing in mind the fact that a traditional bank may not necessarily want to do business with you, you may have no choice but to utilize the services of a finance company such as the type we have described here.
In closing, you really want to seriously think about applying for a construction loan now to take advantage of the fact that interest rates are as low as they currently are. It makes no sense to wait given the fact that most financial experts indicate that it is very likely interest rates on a construction loan will be going up in the not-too-distant future.
A Commercial Construction Loan In A Weak Economy
A Commercial Construction Loan Is Out There
Obtaining a commercial construction loan in a weak economy has not always been easy. As you may or may not already know, many financial institutions suffered significant losses as a result of providing mortgage loans to individuals who proved to be unsuitable credit risks. This created an unfortunate environment in which virtually anybody seeking any kind of loan was subjected to significantly more rigorous credit standards.
Let’s get something out of the way right now. This needs to be said because we want to remain grounded in reality. If you or somebody who already owes hundreds of thousands of dollars in past loans that you are now officially deemed to be in default with regard to, and if you have already filed for bankruptcy — it will be very difficult for you to obtain a commercial construction loan regardless of whether or not the economy is weak or strong. So we are not talking about some kind of magic bullet here whereby you can push a few buttons and have money deposited into your bank account. You need to have some degree of credit worthiness.
Who Can Get A Construction Loan?
That said, there are a wide variety of different people who have found themselves rejected from receiving a commercial construction loan despite being a very reasonable credit risk. The reason why is because of the significantly tighter credit standards that have been established. Fortunately, a cottage industry of finance companies is beginning to develop whereby they raise capital independently and then can apply their own credit standards which are significantly more flexible than a traditional bank. Why is this relevant?
To the extent you are somebody who has been seeking a commercial construction loan, and have found it very difficult to work with the traditional bank, you may very well want to consider reaching out to one of these finance companies to determine whether or not they can help you. The reason why this is so exciting is because you may very well find yourself in a situation where you are able to obtain a commercial construction loan in a weak economy by working with one of these finance companies. You are probably wondering how it is that they can do this.
Commercial Construction Loan Interest Rates
The first thing to understand is that these companies will typically charge you a little bit more in so far as interest rates. But let’s get serious for a second, if a traditional bank won’t even talk to you, don’t you think it makes sense to at least realize that paying a little bit more in interest is far better than not having access to any kind of construction loan?
Another factor is that these finance companies have raised money themselves and are not relying upon third-party funding sources. This is crucial given the fact that it is their own money that they are placing at risk. Therefore, they do not have to answer to anybody else in terms of determining what kind of credit standards should or should not be applied. This works to your advantage given the fact that they are interested in making loans — that is how they earn interest and turn a profit.
In summary, obtaining a commercial construction loan in a weak economy — while challenging — is not impossible.
Getting A Commercial Construction Loan Is Easier Than You Think
A Construction Loan is Possible
Given the global meltdown that took place beginning in late 2008, and which has persisted, has led many people to believe that obtaining a commercial construction loan is virtually impossible. The reason why is because many lending institutions were caught off guard by the so-called financial meltdown which resulted in a wide variety of different financial institutions either going bankrupt or having to be bailed out.
Fortunately, at this present time, getting a commercial construction loan is easier than you think. The reason why it is significantly easier these days is because a variety of different companies have orchestrated an ingenious solution to the problem of getting credit for those that happen to be in the construction business. It’s beyond the scope of our conversation to get into the nitty-gritty of how this all works, but rest assured that it’s completely ethical and legal.
How a Construction Loan is Awarded
The primary factor that is often times used to determine whether or not somebody should receive a commercial construction loan is their credit worthiness. Given the fact that one individual may not necessarily have the best credit, yet another individual seeking a construction loan might have fantastic credit, you really do have a tendency to see a lot of discrepancies with respect to how construction loans are awarded. What if there were a small cottage industry of companies that would raise capital themselves which they could then lend out on terms that are significantly more flexible? In other words, what if the company could actually work with you and not just use a simple formula to decide whether or not to give you a commercial construction loan?
The simple fact of the matter is that there are companies doing exactly what we just described. Now granted, there is a lot more to it than that, but at least this gives you a basic idea of what we’re talking about.
Qualifying For a Construction Loan
So if you think that you may not necessarily qualify for commercial construction loan provided to you through a traditional bank, then you may very well want to be open-minded about potentially working with a finance company that has been specifically created to work with those who are seeking commercial construction loans yet who may not necessarily have the best credit. Whereas a traditional bank may immediately reject you, these finance companies have more flexibility with regard to what types of standards they use given the fact that they have raised capital themselves and are not having to rely on third-party funding sources.
Needless to say, if you are already hopelessly in debt and have already declared bankruptcy in the very recent past, it is plausible that you may run into some difficulty obtaining a construction loan. However, that type of scenario is both extreme and unlikely to be representative of your current situation.
In summary, it has been very difficult to obtain commercial construction loans in the recent past. However, the emergence of a new breed of finance company has now opened up the possibility for more people to be able to successfully apply for and receive a construction loan.
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