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Nevada New Construction Loans
A Guide to New Construction Loans in Nevada
Are you a business owner who is looking to expand? Would you like to purchase land to build a new site so that you no longer have to pay rent? Perhaps you own a building and want to make renovations to meet the demands of your growing business. While expanding your business can be lucrative in the long run, it can be a costly project. Most growing businesses do not have the assets to complete a construction or renovation project out of pocket, so a commercial construction loan in Alabama may be an ideal option.
What is a New Construction Loan?
A new construction loan is used to pay for the construction of a building or the renovation of an existing building. It shouldn’t be confused with a commercial mortgage. A commercial mortgage is for those who want to purchase an existing property.
Commercial construction loans are not like other loans. Other loans, such as a commercial mortgage, will issue the total amount of the loan in one large sum. When the loan has been disbursed, the borrower is then responsible for repaying the balance of the loan. This is a typically a monthly payment period that lasts at least 10 years.
With a commercial mortgage, the borrower will not receive the full funds at once. The borrower will have a meeting with the lender to establish a draw schedule. A draw schedule sets milestones, which is when the funds will be released. For instance, the first draw could be when the borrower purchases the land, and the second draw schedule may be when the foundation has been set. After each milestone, most lenders will have an inspector visit the site to confirm that the work has been completed. Once this occurs, the funds will be issued to the borrower. This process will take place until the construction/renovation project has been finished.
If you take out a commercial loan, you will only be responsible for paying on the interest of the amount that has been issued. For instance, if you took out a commercial construction loan for $600,000, and you only received $100,000 of the total loan amount, then you only be responsible for paying the interest on $100,00. When the full amount of the loan has been issued, and the construction/renovation project has been completed, then you can pay the remaining balance in one sum. However, if you are looking for a more affordable option, then you could quality for a commercial mortgage. A commercial mortgage enables you to pay the balance on the construction loan with the funds that you receive from the commercial mortgage. With commercial mortgages, the construction/renovation property will be used as collateral.
What are the Eligibility Requirements for Commercial Construction Loans in Nevada?
There are several factors that are taken into consideration for a commercial construction loan approval. Most lenders look for borrowers who are low-risk with high credit scores. Although it will depend of the lender, most lenders will want a borrower with a credit score that is at least in the high 600s. Another factor that is looked at is a borrower’s debt-to-income ratio. Most lenders will want a borrower with a debt-to-income ratio that is under 43%.
When you are applying for a commercial construction loan in Nevada, you will need to have a plan that shows each step in the construction/renovation project. You should also prepare a cost estimate plan that shows expenses that include contractors, property, and other materials.
If you want to know more about new construction loans in Nevada, contact our team at Delancey Street. Our professionals are ready to provide you with further details about new construction loans.