Building a house from ground zero can be overwhelming and a great opportunity to personalize your new space. Just like buying a house, constriction requires a lot of financing. Luckily, construction finance for contractors provides the funds necessary to buy land and pay for the material, labor, and other equipment. A construction loan is a type of funding designed to support contractors, sub-contractors, and those working in the property development industry. It can fund new projects, pay suppliers promptly, purchase new construction equipment and machinery and boost capital. There are different types of construction finance available, including secured and unsecured loans.
All About Construction Loan
A construction loan for contractors is a short-term financing option that can be used to cover the costs associated with building a house from scratch. Construction loans may cover buying land, drafting plans, taking out permits, and paying for labor and materials costs.
Construction loans let contractors and homeowners lend money to purchase materials and pay for labor charges necessary to build a property. You also can often use this money to purchase the land you’re building on. If you already own the land, you may be able to use the property as security for your loan because construction loans are generally issued for a period of 12 to 18 months. Some loans automatically convert into permanent finance once construction is complete.
Unlike traditional mortgages, construction finances are not secured by a completed house. For that reason, the application processes for a construction loan also are more complex than other mortgages. Your lender will likely want to inspect your plans and examine your financial situation before approving. You will probably need to provide an estimated construction timeline and financial plan.
Types of Construction Loans
Construction to permanent loan – this can be used to finance the home’s construction and then convert into a fixed mortgage once the home is completed.
Construction only loan – it is a short-term adjustable loan used to complete the home construction. After construction is completed, the loan must be paid in full amount.
Owner builder loan – these loans are available to those who can demonstrate experience in the construction field and are the professional home builder.
Renovation loan – these types of construction loans are used to cover the cost of house purchasing and performing the major renovation.
Benefits of Construction Loans for Contractors
The most prominent benefit of a construction loan is that you get advanced funds within hours of raising an uncertified application for payment. This allows you to pay costs like staff wages and suppliers long before you get paid by the main contractor.
- Funding within 24 hours of raising uncertified applications for payment.
- Confidential, if required — your customers don’t know you’re using funding.
- Pay wages, bills, labor costs, or suppliers before you get paid by the customer/main contractor.
- Improve cash flow and take on new jobs with confidence.
Lastly, most of our clients ask how one becomes eligible for construction finance?
The answer is simple; you could be eligible for construction funding if any of the ones apply to you:
- You are the contractor or sub-contractor.
- Raise application for payment
- Raise invoices
- Have CIS UTR number