Construction Loans: What You Should Know About The Process
When you decide to move forward with a construction project, you first need to secure your funding. To get started, you need to have an estimate in mind. This will consist of researching similar projects to yours, along with discussions with your financial advisor. Once you are ready, it is time to apply for a commercial construction loan. Here are some things you need to know about the process:
Find a Lender
The first thing you need to do is find a lender who will finance your project. Ideally, you should choose a lender in your local area rather than a lender primarily online or headquartered in another state. Local lenders are best because you can physically visit the branch and speak to lenders in person. A lender in your area also increases your odds of approval since they know the local market and will know whether or not your project is a good risk.
The Lender Review Process
A lender may ask you to go through a lender review before considering your construction project. You will not need to have your financial statements and other documentation at this time. The lender will simply go over your idea and your vision. It would be good to have some basic numbers with you for the review, though they do not have to be exact. Your figures should include the anticipated costs and the summary projections. If the lender likes the outcome of the review, the process of underwriting will start. At this point, the lender will begin to request your detailed financial information.
If you have not yet involved your attorney, this would be a good time to do so. An attorney who is well versed in construction lending is beneficial. Your attorney will help you navigate the process and ensure you meet all requirements of the loan. He or she will also close the loan and act as your advocate throughout the process.
The Closing Process
You should receive a commitment letter, which indicates your loan will move forward. This is the time to finalize your closing checklist. Your checklist should include every document you need, such as a lien search, title search of your property, and proof of insurance. After everything is finalized and you have provided all the information required of you, the loan funds will go into your account and allow you to continue with your construction project.