Commercial Construction Loans, Deconstructed (Part 2)
November 19, 2015
Recently I posted an article entitled "Commercial Construction Loans, Deconstructed" Here are two key points I made:
- It is a complicated type of commercial loan, definitely not for the beginner. This is because there are so many different, complex parts to it and without sufficient knowledge you could be vulnerable to financial loss. For example, one component has to do with the estimation of material costs and labor costs concerning construction materials. A problem is that an inexperienced investor could greatly underestimate costs because of inexperience.
- If you want to get a commercial construction loan and you have no experience, it is strongly recommended that you get a partner who has experience. There are so many areas where you will be in over your head, making it wise to get a partner. For example, do you know how to choose the right people for the architectural design, building, lending, etc.?
In the meanwhile, we fund commercial construction loans, and can help you find out if you pre-qualify or what you need to do to pre-qualify for a commercial construction loan. Call us for any of your commercial loan needs – whether it’s multifamily, office, retail, senior living, medical, hotel and other types. It takes a simple phone call or text: 214-695-7310 or email bruce@businessloanstore.com
In Commercial Construction Loans Part 2, I am covering some basics on one type of commercial construction loan called FHA.
An FHA construction loan, also known as a HUD construction loan is quite different from conventional construction financing. Here are some of the characteristics of an FHA construction loan:
- FHA construction financing is government financing. Conventional financing is bank or other type financing (but not government).
- FHA construction financing is good if you plan to keep your property very long term. For example, you plan to have your children inherit the property.
- Your payments per month are typically smaller than for conventional construction loans.
- With FHA financing you can get financing with considerably less down, which means a higher loan to value. You can get 83.3% financing.
- You also get a higher amortization – 40 years. This helps give you smaller payments.
- Not only can you get a loan for less down, but there are other areas that you don’t have to be as strong financially as you do for a conventional construction loan. This is because with an FHA loan, the emphasis on the strength of the property is quite a bit more than the emphasis on the finances of the investor.
- One disadvantage is that you have quite a bit more paper work with an FHA construction loan.
- Another disadvantage is that your expenses are quite a bit higher with an FHA construction loan. This is offset by smaller payments. If you plan to keep the property long term, with an FHA construction loan, you will generally come out ahead.
- Another disadvantage is that an FHA construction loan takes longer to do than a conventional construction loan.
- Also, another difference is that with FHA construction, you have quite a few government regulations to follow.
Contact us to see if you qualify for our best multifamily, commercial, or bridge loan rates and terms. Keep in mind that one of our specialties is Commercial Construction Lending. Also, contact us if you would like to discuss your particular commercial lending needs, or if you have questions. Call or text 214-695-7310, or send an email to bruce@businessloanstore.com
To discover more about our loan products as well as rates and terms, go to apartmentloanstore.com.
Bruce Painter, Director of Marketing, Business Loan Store