Not all Construction Loans are the Same

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Selecting the right lender should not be by accident

We spend a lot of time advising our clients on the value of selecting a builder that can be trusted to build a home on budget,  with quality and on time. But for many, finance is an after thought.  There is an often-held belief that banks are basically the same.  That simply is not true with construction loans.  A construction loan requires someone at the bank with adequate expertise and experience to guide you through to a successfully funded build.

Selecting the right finance is critical

All too often finance is an afterthought, and if your finance is not managed correctly then your build can be disastrous.   You will sign two legally binding contracts; one with your builder and one with your bank.  But in many areas they may be in direct conflict with each other. This often means you become the ham in the sandwich (or donkey in the middle) and while the bank always wins this tug of war, you will lose.  In the meantime, your builder has control of the project making this an awful situation in which to find yourself.

You can avoid these conflicts by ensuring your builder and your bank have similar expectations:

  1. Deposit payments
  2. Progress payment schedule
  3. PC sums, variations, owner's care, and by owner items
  4. What is considered completion for final payment

Don’t run out of funding during the build

When securing a construction loan with your bank they will inevitably look at funding to get you to the start of your project. But NewBuild looks at all the resources you need to get to the completion of your project.  This is a philosophical approach that makes building with NewBuild so much easier.

It’s easy to run out of money during construction. There are several reasons why this might happen, but they can all be overcome:

• You may have to pay rent and construction loan interest at the same time. This is one of the biggest causes of stress and can be overcome using NewBuild “Turn Key” finance option.
• Having too many items excluded from your contract. If you want to do some of the work yourself (driveways, retaining walls, landscape, and the list goes on) you must either hold back some of your deposit from the bank or you need to find a way to include these costs in your finance.
• Your builder may have omitted items that you thought were included or the provisional cost sums were not accurate.

While it is impossible to know for sure if everything is covered, you can take sound steps to protect yourself, ensuring that the build contract price does not move drastically or that you have sufficient funding to ensure you can complete your home.