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New Mexico New Construction Loans
New Mexico Construction Loans
Business owners who want to expand in New Mexico should consider a new commercial construction loan. There are many reasons business owners take out commercial construction loans. This type of loan can help business owners who want to expand their current office buildings or construct a new building from the ground up.
What is a Commercial Construction Loan?
A commercial construction loan is designed to cover the financial cost for the construction of a new office building or the renovation of an existing building. The funds from a commercial construction loan can be used to cover the cost of materials, labor, purchase of the property, and more.
A commercial mortgage is made for business owners who want to purchase existing commercial property, but a commercial construction loan is specifically made for renovation and construction. Although expansion of a business is sometimes necessary, it can be difficult to get there with the high cost associated with new construction and renovations. It can cost thousands to millions of dollars to complete a commercial construction project, and many business owners don’t have the cash to pay for the construction up front.
How do Commercial Construction Loans Work?
Commercial construction loans are different from traditional loans. With most loans, the full amount of the loan is disbursed to the borrower at once. When the borrower has received the funds, he or she will be responsible for paying back the loan. Most commercial loans have a monthly repayment period of at least 10 years.
With commercial loans, a partial amount of the funds will be disbursed throughout the project. The borrower will meet with the lender to establish a draw schedule. After a new milestone is completed, partial funds will be disbursed, which is known as a draw. The first draw may be when the land is purchased, and the second draw may be when the foundation is poured. Most lenders will have an inspector go to the construction and/or renovation site to confirm that the milestone has been met. Partial funds will continue to be disbursed until the project is completed.
Another difference between a commercial construction loan and a traditional loan is how they are repaid. With commercial construction loans, you are only responsible for the interest of the amount that has been disbursed. For instance, if you took out a commercial construction loan for $600,00, but only $100,000 of the loan has been disbursed, then you will only be responsible for paying interest on the $100,000.
With most commercial construction loans, borrowers can pay off the principle in one sum when the construction project has been completed. However, there are times when business owners take out a commercial mortgage. A commercial mortgage will use the property as a collateral. The borrower will pay back the commercial construction loan with the funds from the commercial mortgage. This gives the borrower the opportunity to make locked monthly payments over a set period of time.
The interest rates for a commercial construction loan typically range from 4% to 12%. Business owners with higher credit scores will have lower interest rates. A down payment may be required for a construction loan, which could range from 10% to 30% of the entire loan.
How to Prepare for Taking Out a New Mexico Construction Loan
If you are planning to take out a commercial construction loan in New Mexico, you should prepare a business plan that outlines each step in the construction project. You will also need to have a cost estimate plan that outlines the cost of materials, labor, and other expenses.