How Does A construction Loan Work

Construction loans are taken to help in the funding of a building or developmental project. As such, the first major step is to identify the amount of funds the construction requires. It would be a disaster to find that the finance might still not be enough to cover the costs of the project. Setting this right early is instrumental in ensuring that everything goes smoothly.

The total cost of the construction project consists of both hard and soft costs. Labour and materials are considered hard costs, for example, while architectural plans, council permits, and others of the sort (including inspection and approvals) are soft costs.

It is key that you take all these costs into consideration when proceeding with construction financing, factoring in some additional funds in case of contingency.

In your calculations, two ratios should stand above all others - the loan to cost ratio, and the loan to value ratio.

The loan value is affected by how much you can deposit for your finances.
The maximum loan to value/cost ratio can vary depending on the lender you choose.

Construction Loan Repayments

An effective way to manage loan repayments when taking construction loans is to opt for progressive drawdowns (which are gradual releases of your funds). It is unlikely that the sum of the approved construction finance will be needed upfront, which makes it easier to arrange for a loan contract that allows you to withdraw funds along the way, as you require. This can help to save on interest costs, especially during the earlier stages of the project.


What can you use construction financing for at Gryphon Financial?

Here at Gryphon Financial, we can arrange a loan to be used for nearly any construction project. This includes the following:

• Commercial property development
• Commercial property renovation
• Multi-residential construction projects
• Single-dwelling homes
• Land developments
• Etc. 

What are the best terms to aim for when applying for construction finance?

To achieve the best result, first ensure that you provide as much deposit as you are able, then as much lender security as possible.

First mortgages are highly preferred among the majority of lenders. On occasion, you may also require a second mortgage or mezzanine funding.

At Gryphon Financial, we will compare from our network of over 200 to arrange a deal that best suits your individual scenario.

How do I apply?

You can check your eligibility by contacting us through the enquire button at the top right of our website. Simply send in an enquiry and one of our lending managers will assist you all the way, and get back to you with a pre-approval in less than a single working day. Here at Gryphon Financial, we settle difficult scenarios fast.