Construction projects can be unwieldy without adequate financing. Fortunately, construction loans can provide the funds you need to ensure success at every stage of the project. However, there are three types of construction loans, and it is important to know how each one works in order to choose the right construction loans for your project.
Construction-to-Permanent Loans
Construction-to-Permanent loans are typically used when a plan of action and timeline have been established. As the project progresses, funding is provided to cover expenses, payroll, materials, and more. Once the project is finished, the construction loan is treated as a mortgage. Construction-to-Permanent loans are among the most common types of construction financing, preferred by commercial real estate investors and developers because once the loan converts to a mortgage, the interest rate is locked, so it will not increase due to market fluctuations.
Construction-Only Loans
A construction-only loan is unique because no payments are required until the entire project is complete. Once finished, the entire balance must be repaid in a single transaction. A construction-only loan is typically used when other funds are still in the pipeline or the finished project is slated to be sold immediately after wrapping up work.
Renovation Construction Loans
As you might expect, a renovation construction loan is used for rehab or build-outs on existing structures. A renovation loan is structured around the after-repair value (ARV), meaning the value of the property after renovations and improvements are finished. In many cases, renovation construction loans are used by property flippers or commercial real estate investors who are undertaking adaptive re-use projects to turn older structures into something new, such as taking an old textile mill and converting it into a brewery or a multifamily apartment building.
Get the Right Construction Loan for Your Next Project
Golden Century Lending provides construction financing for projects of every size. Whether you are performing renovations, or if you have a large-scale development project, our team can arrange a solution tailored to your needs. Contact the experts at Golden Century Lending today to learn more about our construction loans.