Real Estate Construction Loans

Investing in real estate is fast becoming a profitable avenue. The housing industry is one that is not affected much by fluctuating economic conditions. This invites more investors in real estate.

Real Estate Loan
A real estate loan is a loan primarily secured by liens on real property and is part of the portfolio of most financial institutions. These include credit advanced for the purchase of real property and extensions that are approved for other purposes. The principal collateral would be real property. As with any other type of loan, there is a certain amount of risk associated with these loans.

The degree of risk involved in a real estate loan depends on three main factors:
· The loan amount in relation to the value of the collateral
· The rate of interest
· The borrower’s ability to repay the loan methodically

The financial institution’s policy must make sure that the loan is granted with the reasonable prospect that the borrower is able and willing to meet the loan payment terms. Some institutions make thlyine mistake of reg on the property’s appraised value instead of on the borrower’s repayment ability. An inappropriate relationship between the loan amount and the potential selling price of the property and the market availability signifies a problematic loan. The potential selling price of the property may or may not be same as the value it was appraised at. The appraised value of the property is of secondary importance when compared to its potential selling price, which is of primary importance. This is because there may be little or no demand for the property at its appraised value.

Commercial Real Estate Loan
A commercial real estate loan can be used to finance commercial projects like apartments, shopping centers, warehouses, automobile dealerships, movie theaters, healthcare facilities, malls, industrial parks, hotels and other commercial real estate ventures. There are different types of commercial real estate loans:

Acquisition loan
This loan is used to acquire property using the proceeds of the loan.

Acquisition and Development Loan
This is a loan used to both acquire and improve a commercial real estate property. The loan to value (LTV) ratio is determined by the estimated improvement value.

Asset Based Loan
An asset-based loan is used for any purpose in which a collateral is put up as security.

Bankruptcy and Foreclosures
This loan finances the commercial real estate assets till institutional financing is available on an asset or the asset is sold.

Bridge Loan
Bridge loans are used for a small time period till permanent financing is set up. The loan could be used for acquiring, buying out, and foreclosure, cashing out or constructing purposes.

Construction Loan
A construction loan can be used to construct a building or make other improvements on real estate. The land and improvements would then be the collateral for the loan. A construction loan is a short-term line of credit used to pay for the materials and labor that is required to build a home. Money is advanced to the builder as the home construction moves towards completion. When borrowers take out a construction loan, they pay an interest on the amount and the payments are based on the outstanding balance on the line of credit. The payments on this loan are lower in the beginning, but increases monthly as the builder draws against the line of credit. When the home is complete, depending on the type of financing, the construction loan will either automatically convert to a traditional mortgage or a separate mortgage must be arranged for to pay off the loan. The costs associated with a construction loan are more than that of a traditional mortgage, because the process is a lengthy one.

Development Loan
Development loans can be used to acquire and develop real property to an improved state. As in an acquisition and development loan, the loan to value (LTV) ratio is determined by the estimated improvement value.

Rehabilitation Loan
A rehabilitation loan is used to purchase an existing real property to repair defects and remodeling.

Real Estate Loan Refinance
A real estate loan refinance is considered when the current commercial real estate loan rate or terms are better than the original one.

Hard Money Loan
Hard money loans are funded by private investors and sources. The loan rate and points are higher when compared to other types of loans. A hard money loan is so called because the project may be difficult to finance and the loan is a non-conventional one. The rates are high because of different factors like lack of time, bankruptcy or foreclosure, bad credit and other problems. A hard money lender takes a higher risk than the conventional lenders because they fund loans at a higher rate of interest.

Real Estate Development Loan
Lenders provide financing for real estate development projects, in the form of a real estate development loan. The real estate development projects may be commercial or residential units. The loan finances the development costs incurred before construction, like additional funding for acquiring land, architectural and engineering costs, and the like. It may also include the related construction loan. An asset-based lender may require a collateral for real estate development loans. Other requirements could be:
· Experience: The borrower must have considerable experience in construction and development to qualify for this loan
· Property: The borrower must own the property or the property must be under binding contract, to get the loan
· The borrower must be prepared with all the approvals needed to obtain permits
· Sometimes the borrower needs to have at least forty percent cash investment in the land.