Building a new property is an exciting experience, but securing financing can be a challenging process. Many people believe that getting a construction loan is difficult, and that certainly can be true in some cases. However, with the correct approach and expertise, you can quickly get approved for a construction loan. It’s usually only a matter of proper planning and matching the right project to the right lender.
Bank of South Texas has been serving customers in South Texas for nearly 30 years. As a trusted community lender, the bank specializes in offering flexible terms to meet a variety of needs. Margaret Macias has been working with customers at Bank of South Texas since 2006. In total, she has more than 18 years of experience in the lending industry. Joe Guzman has been in the banking industry since 1997 and has nearly 15 years of experience as a loan officer. Both experts shared the following tips for anyone who is planning to apply for a residential or commercial construction loan in the Rio Grande Valley.
HOW CONSTRUCTION LOANS WORK
A construction loan is a short-term loan used to pay for the cost of building a property. According to Guzman, it’s important for customers to learn the facts about construction lending. “Customers need to understand the process and be comfortable with it,” he says. “It’s my job to facilitate that.” Customers can think of a construction loan as a large line of credit that only lasts until the property is built. The borrower periodically draws from the loan during the construction process and only pays interest on the outstanding balance. When the building process is complete, the borrower must secure permanent financing to pay off the construction loan.
DEVELOPING YOUR CONSTRUCTION BUDGET
According to Macias, the very first step in planning the construction of a new property is determining your budget. “It’s critical to develop solid plans to ensure success,” she says. “Before starting a home construction project, it’s a good idea to establish a budget plan to help maintain costs.” Calculating your spending limits and developing a preliminary budget estimate will go a long way towards facilitating the entire process as you prepare your plans and specifications. With information about your monthly income and debt obligations, a qualified lender can help you work backwards to determine out how much you can afford to borrow.
PREQUALIFYING FOR PERMANENT FINANCING
While a construction loan isn’t necessarily more difficult to obtain than a traditional loan, it can be a more complicated process. From the lender’s perspective, a construction loan is a short-term, high-risk investment. The bank is lending money for something that will be constructed, with the assumption that it will have a certain value when it’s finished. To help offset this risk, most construction lenders have strict qualification criteria for construction loans. That’s why prequalification is an important step in the process.
Getting pre-approved for permanent financing is a great way to start the construction loan process. A mortgage lender can help you determine the amount you qualify for, what your costs will be, and what payments you can expect. “It’s beneficial to go to a mortgage lender because you can get a 30-year fixed rate,” says Macias. As you go through the process, you’ll need to provide information about your income, cash, and assets. You’ll also need to report any debts or liabilities, including credit card payments, car loans, and student debt. Most lenders also want to see your two most recent paystubs, bank statements, and tax returns. If you don’t have a mortgage lender, don’t hesitate to call Bank of South Texas for assistance.
SELECTING A BUILDER
Constructing a property could be one of the largest financial decisions you’ll ever make. With so much at stake, you certainly don’t want to run into problems that could have been avoided by properly investigating the builder. That’s why selecting a builder is a critical consideration. It’s important to hire an accomplished builder with the right expertise. At the beginning of the process, be sure to ask for references and verify their licensing and qualification claims.
You can also check with the Texas licensing body and the Better Business Bureau to see if any charges have been registered against the builder. Find out how long the builder has been constructing custom homes in the Rio Grande Valley area. Longevity is an important indicator of work quality and customer service. Find a thorough design checklist and use it when meeting with prospective builders. Asking about locations, price
ranges, and materials they specialize in will help you evaluate the builder’s expertise with regard to your needs.
Be sure to look for a contractor who builds the specific type of home you want to build. Builders have different areas of competency, so it’s important to chose someone with the proper experience. Personal references can be one of the best ways to identify good Rio Grande Valley home builders. Ask satisfied homeowners in the area for recommendations. Talk to recent customers of the contractor you are considering because getting feedback from actual customers is very important.
APPLYING FOR A CONSTRUCTION LOAN
Choosing a construction lender is a very important part of making your dream a reality. Bank of South Texas has experienced construction lenders, flexible loan options, and the customer service you need. “When you’re ready to apply for a construction loan, come see us at Bank of South Texas,” says Guzman. “Our loan officers are incredibly accessible. We can provide you with a one-on-one consultation to guide you through the whole process.”
It’s critical to choose a bank that has local experience in construction lending and an excellent reputation among builders and customers. Bank of South Texas has gone to great lengths to become the best construction lender in South Texas by providing customers with superior products and services. “Strengthening the communities we serve is fundamental to the future of our business,” says Macias. “As we grow, our roots remain in local communities. Our work with communities spans the spectrum from consumer and commercial lending to investing and promoting economic development.”
After applying for a construction loan, waiting for a decision can be frustrating. Many banks can take weeks or months to respond with a decision. Bank of South Texas is known for offering a quick response period. “We typically get back to the customer within 3 business days,” says Guzman. “You will deal directly with local decision makers because all of our loans are serviced locally. Our employees have years of experience to provide you with solutions without the hassle found in bigger banks. Our seasoned commercial lending staff is well versed in all aspects of construction lending.”
Once you’re approved, Bank of South Texas will work with your builder and mortgage lender throughout the construction process. According Macias, there are countless reasons to choose Bank of South Texas for your construction loan, from local decisions to great rates and fair terms. But the biggest reason is the outstanding staff. “Our best-in-the-business team of loan professionals is ready to assist you every step of the way,” says Macias. “We excel at treating customers the way they want to be treated. If you’re interested in a residential or commercial construction loan, we’d love to meet with you at your nearest branch.”
For more information on Bank of South Texas,
call us at 956-435-0379.