Finding the Right Lender for Construction Loans

Finding the Right Lender for Construction Loans

We have relationships with local banks that offer Construction Loans to build your new custom home. We are going to do a series on what to look for and keep in mind as you go through this process. Today we will start with what to keep in mind as you look for the right lender. Most construction loans are issued by banks, not mortgage companies, as the loans are typically held by the bank until the building is complete. Construction loans are more complicated and variable than mortgages. You want to ensure you work with a lender experienced in these loans. Not all banks offer all types of construction loans, you need to understand what is available in our community.

You will need to understand the lenders’ policies on draw schedules, inspection and payment procedures, and qualification rules, these will vary from bank to bank. You want to make sure your loan officer is experienced in construction loans and is one who will walk you through the process and protect your interests.

In most case the loan officers get paid on commission when they release funds. There can be a potential conflict of interest if the loan officer wants to release funds at the end of project and you want the funds withheld until problems are corrected. Even though payments are generally based on physical inspections of the work done, the inspectors are simply looking to see if the work has been completed, not at its quality.

Different lenders have different policies around construction loans. For example, if you have a mortgage on your current home that you are selling, some lenders will not count that against your borrowing limits. If they do, you may need to sell your first house before you can obtain a construction mortgage to build your new home.

Different lenders will also offer different rates. Naturally you will also want the best rates and terms available. If the bank you have dealt with for many years is a little higher than a bank you have less confidence in, tell your local bank you’d like to work with them – but can they do a little better on the rate to match their competitor? Since all banks borrow their money at the same rate, they can all lend at the same rate. You need to ensure you know what the options are so you can make the most informed decision and negotiate the best rates and deals. We will be with you along the way so use our expertise to ask questions and ensure you understand everything there is to know.