Ground Up construction loans have become more popular and have been found as a way to increase profits when working with fix and flip and other investment properties. To be most effective with new construction, investors need to know exactly how they work and how to get the best financing for their project.
What is unique about a Ground Up Construction Loan?
Unlike most mortgages and real-estate loans, Ground Up construction loans are short-term and are limited to only covering the purchase and / or construction of a property, or solely the construction.
If you are looking to turn the constructed property into a single or multi-family rental, it is suggested once completed, to then refinance into a long-term or permanent mortgage, as the Ground Up Construction Loan is typically 1-3 years.
What percentage of the cost am I able to borrow?
The percentage of the loan varies depending on the lender. CambridgeCapital.org lends up to 90% of the ground and 100% of the construction.
Planning for your Ground Up Construction Loan
The best thing to do in advance to prepare for your project and loan is to plan. This plan should include everything from start to finish of this project and will best prepare you for the most successful outcome. To prepare for your loan, you should know what is required of you by the lender, completing these requirements will allow you to close as quickly as possible.
When thinking ahead about your loan, you should prepare a scope of work as phases to manage construction draws. Different lenders and lending options use different processes for construction draws during the project. Obtaining this information will help you plan for the documentation, inspection fees, and other requirements for each of the phased draws. Having this planned beforehand will ensure you have the funds so nothing is held up and the process goes as smoothly as possible to completion.
What if my project takes longer than expected?
More often than anyone would like, construction projects go over the time that it was expected to be completed. This can be due to weather delays, material shortage, unreliable contractors, and other factors. This is something that you should think about in your planning process and be aware of when looking into your loan. Be aware of the penalties, if there are any, in your loan contract and what would happen in the worst case-scenario. If available, ask your lender if you have add an extension provision. This typically comes with a fee that you will be happy to pay if your timeline runs over.
What happens if my plans change throughout the construction process?
Things change. That’s understandable. But knowing your options if things were to change is very important. Whether you want to change your plan from renting to selling, or selling to renting, Cambridgecapital.org can help you refinance into a long term loan if need be. Cambridgecapital.org can be there for all your loan and refinancing needs! Contact us today to discuss your loan scenario 800-826-5077, firstname.lastname@example.org.
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