Here are some tips to make the construction loan process smooth and timely.
1. Build a relationship with your lender that maximizes benefits when construction is completed.
- Develop relationships with lenders to determine which might be a good fit for the project being contemplated. Most lenders have preferences on project types and locations.
- Choose a full-service lender so you benefit from access to a wide range of banking products that not only span the entire life cycle of your real estate capital needs — but that also help you run your business.
2. Begin the loan process early and be fully prepared.
- Start working with your lender three to six months before groundbreaking.
- Have equity identified and terms negotiated as early as possible.
- Complete the initial set of plans and drawings so your lender can carry out its due diligence process.
3. Make sure your lender tailors financing terms to your transaction.
- Ensure that the term sheet provided by the lender addresses all critical components.
- Your lender should customize to your terms to expedite a smooth closing. Be actively involved in the loan closing discussions and understand the draw requirements.
4. Take steps to prevent delays in closing your loan.
- When possible, negotiate guaranteed maximum price construction contracts (GMAX).
- Make use of weekly deal team status meetings and monitor checklists to help ensure a smooth closing.
- Ask who will be your contact for the servicing of your loan and the funding of your construction draws after the loan is closed.
- Understand flood insurance requirements for the land you are building on and be prepared to satisfy them.
5. Maintain strong lines of communication to help meet completion dates.
- Immediately discuss any construction delays, cost overruns and/or unforeseen conditions with your lender so you can explore possible solutions early.
- Submit your draw package to the lender and the inspector simultaneously.
- Many projects can take two to three years to complete and market conditions can change, so discuss your refinance options early with your lender once construction is completed and the project is nearing stabilization.