Getting a good loan of any kind is usually a challenge, and it tends to be even more so when it comes to construction loans. Whether you are building homes to rent or sell, building a new business or renovating an existing commercial space, you will have to navigate the complex loan process.
These loans have higher standards of qualification. The good news is that there are things you can do to increase the likeliness that a lender will approve you for a loan.
1. Own the land
When you own the land free and clear, that is one less item to include in the loan, lowering the amount you have to ask for. Land also can act as a form of collateral for the loan. Some lenders may have land ownership as a requirement for certain construction loans, so be sure to find out as you research your options.
2. Have enough cash
Unlike a traditional loan, you may need to have some cash upfront to pay for the different phases of building, whether the loan comes in installments or at the completion of the project. You will also have to consider contractors who will work with whatever loan type you get. Also, make sure you hire a reputable, trustworthy contractor to ease the lender’s worries.
3. Prepare for the appraisal
A significant factor in gaining approval is the appraisal of the project. Do your homework to get a higher appraisal value by ensuring the intended use of the property is physically, legally and financially possible. This means looking at factors such as the following:
- Vacancy rate
- Operating costs
- Market trends
This research is especially relevant in deciding the best way to convert the use of already existing buildings.
4. Prove your worth
Gather all other necessary documentation to strengthen your case. The better prepared you come to the table to prove that you qualify and your project is worth it, the likelier you are to walk away with a loan.