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Property Development Loans – Basics And Key Features

Instead of purchasing a new or an already existing house, perhaps you may want to consider building a house of your own. Building and owning a brand-new house brings a host of advantages, such as lower repair costs, higher energy efficiency, and further customization options.

A property development loan

If you opt to build a new house, your first step will be to get a development loan. A development loan is a type of financing that is typically procured by a property developer, with the aim of raising the necessary funds for either a new project or a renovation project.

However, getting a development project can be a rather complicated and frustrating procedure, especially if you are an inexperienced, small developer. In most cases, lenders see this lending form as being quite risky and will seek to alleviate the risks by stipulating rather strict acceptance criteria.

Two separate loans

dhgdhd64A standard development loan typically consists of two separate loans. The first loan comes in the form of a land loan, which provides the funds necessary for the procurement of the land plot that is going to be used for property development. In most cases, this loan provides around 70% to 80% of the land value. It also remains outstanding for the entire duration of the development project. The second of these loans is better known as the development loan proper, which provides the necessary funding for the actual construction of the property. This loan covers everything from the architect drawings and fees to the material supplies and contractor fees. And, just like the land loan, the development loan will be typically valued at around 70% to 80% of the total build costs.

A multi-tiered loan

Also, keep in mind that obtaining a development loan that covers the full extent of the project costs will be very difficult and complex to arrange. However, it could be theoretically possible, by looking to arrange a multi-tiered loan. In this case, one lender will provide the initial outlay, whereas the senior lender will provide a second loan, which will allow for the total cost of the project’s completion.

Renovation loans

If you need a development loan for the purposes of renovation though, the entire process is much easier and simpler. The odds of obtaining a successful loan will rise dramatically. The main reason behind this is the high possibility that the original property, which is going to be renovated, may hold just enough equity to completely underwrite the development loan. This is why many lender establishments view this as a fairly low-risk prospect.

Loan brokerage

hdhdd764Now, regardless of the circumstances, don’t forget to seek quality services of a reputable new build finance broker. Also, keep in mind that any application for a development loan will have to be supported by a plethora of important documentation, which will include a robust business plan, as well as a fully audited account.

An experienced and reputable finance broker will be more than capable of helping you obtain and manage this documentation, while at the same time serving as the main point of contact between the lenders and the builders. Usually, the introduction of a reputable finance broker is one of the main requirements for the procurement of a property development loan. Therefore, when entering a new construction venture, be sure to make this addition to your financial team.

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