The nation’s builders are hard at work creating new inventory for the real estate market. New home sales are increasing, making up a larger percentage of homes sold on the MLS. The past two consecutive quarters have seen residential construction loan growth, an integral factor in allowing builders to fund new projects and increase inventory. However, many people still think of construction loans in traditional conventional terms. There are several differences between construction and conventional loans that benefit builders by design.
Residential Construction Loans & Conventional Loans Defined
A key difference between construction and conventional loans is the purpose each serves. Construction loans are designed to fund the build or renovation of a residential project. Conventional loans are intended for the purchase of an already completed and inhabitable property.
3 Differences Between Construction Loans & Conventional Loans
Disbursement
Conventional loans disburse the entire loan amount at the time of funding. The loan proceeds pay off existing liens on the property, various closing costs, and the deeded owner.
Construction loans disburse funds as development progresses through a series of draws- the disbursement of loan funds to the borrower. Funds are released based on third-party project progress inspections.
Interest
Construction loans typically only charge interest on the drawn balance; the borrower is only charged interest on the loan amount utilized. Conventional loans start accruing interest on the entire loan amount the day it is funded. Know your loan and check terms carefully.
Terms
Construction loans have a much shorter term, usually no longer than 12-24 months. Conventional mortgages most commonly range from a 15–30-year amortization.
Differences Between Bank Construction Loans vs. Builders Capital Loans
Builders Capital exceeds industry standards by allowing borrowers to access capital quickly, giving loan approval in three days, and getting closing documents to escrow in as little as five days. Our in-house servicing team funds draws within 3-5 business days.
Another big difference is our borrowers. Regional banks offer construction loans to homeowners building a home to occupy as well as loans for builders. As a private lender, Builders Capital provides loans to business entities.
About Builders Capital
Builders Capital is one of the nation’s largest private construction lenders, offering innovative financing solutions to a wide spectrum of developers and homebuilders, from bridge, fix-and-flip, and ground-up construction to development and attached housing. The Company maintains offices in Puyallup, Washington, with sales offices in Boise, Denver, Colorado Springs, Vancouver, Phoenix and Orlando. Builders Capital’s management team brings to the business over 100 years of expertise in residential construction lending, home building, real estate development, and loan servicing.
