Do you know why Construction Loans Are Mostly Private Investor Mortgages?

“There Are Several Reasons Why A High Percentage Of Construction Loans Are Provided By Private Lenders”

It may come as a surprise that most construction related loans for land acquisition, site development, building, and bridge financing come from private lenders.

The truth is that institutional lenders do not commonly finance construction loans, but will provide them if they can secure the long term take out mortgage at the end of the project.

All construction projects come with a certain amount of risk, and institutional lenders are very risk averse. They work to minimize risk when engaging in construction financing and that explains why it’s so complicated.

While the same risk exists for private lenders, they tend to focus on certain types of construction in specific regional areas and builder relationships. This helps them more effectively manage their risk. It allows them to assess and approve construction loans more easily than a traditional lender would.

The important thing to note is that while some money may appear to come cheaper, it often has more strings attached. Private mortgages for construction financing are more expensive than their institutional equivalent, but also tend to allow more flexibility. The adjusted cost can be equity.

If you are considering purchasing a residential lot, are planning a construction project, or are in need of construction financing, contact us today so we can quickly assess your requirements.