3 Construction Loan Pitfalls

When applying for construction loans, we still can’t ignore the genera tried and true principles in general lending process. Neglected this fact could wreak havoc on our construction project and we plan to sell the property, we may not be able to achieve the desired profit.

  1. Using the money other purposes: We shouldn’t loan money for anything unrelated to our construction project. This should be considered as a sure-fire way to make sure that our construction project could deliver enough profitability. This happen quite often and many people take this opportunity as an opportunity to fund other things, such as car purchases and small business financing. It could wreak pure havoc on our construction project, especially when we experience an expected shortfall. This could cause a major catastrophe and our project can become a total failure.
  2. Not considering extra expenses: It should be noted that most construction projects are over-budget, because people often underestimate what they need. They could to need cover product price increases, labor costs and even material thefts. It’s customary to expect random occurrences on a construction sites. As an example, some errant employees could have sticky fingers, who habitually take things from the construction site, even if it is just a small pouch of nails. In this case, we should make sure that our construction site is properly secured to deter thefts. The construction project may take a long time to complete, depending on its size and scope. Since we start the project, there could also be price increases that make it likely for us to experience over budget. Based on the situations, the new price could be substantially higher than the original price. As an example, we could plan to have wood flooring and a wood shed in the backyard, but sudden drop in supplies from importers could cause significant hike in price. In this situation, it would be quite time consuming to ask for extra lending. The lender will question the progress of our project and they may start to have doubt in our ability to complete the project.
  3. Not asking helps from expert: Loan experts could help us to make the lending process much easier. Every mistake we do due to our ignorance on could have fatal implications in the end. There are many horror stories associated with this situation. Construction loans may require more effort to acquire and this could be quite challenging for inexperienced lenders and it could be worse for borrowers. In general, the inexperience of lenders could cost us a lot of money. The importance of working with loan experts can’t be stressed enough. As an example, we may not be aware that the interest rate of our construction loans is exorbitantly high and this could cause troubles in the future. Always allow enough time to perform research before we start applying for the loan and we should be aware that it will take more than a year before is purchased by a buyer, so we could be required to repay some of the loan and its interest, before we have any real income.