Most builders constructing spec houses want to optimize their own capital . So they seek funding with a spec construction loan.
Most or all of the money to build a house can come from a lender. A lender relationship is extremely important, and it’s in their best interest for you to succeed.
Here are six tips a lender wants you to know as you get ready to apply for a spec construction loan.
Tip 1: Be responsive.
The most important thing that an applicant can do is to do a good job of responding to the lender’s information requests. First impressions matter - so start things off on the right foot. All lenders have a process including their own set of forms. In an ideal situation, a builder applicant will work with the lender’s process to get them what they need when they need it. Responsiveness is an essential to be considered for funding.
Tip 2: Provide accurate and thorough information.
When you’re providing information, be accurate and thorough. Whenever possible, complete information online or provide information that’s been typed rather than handwritten. Don’t let employees sign and submit items on your behalf - do it yourself.
Early in the process ask the lender the items that you’ll provide. Review this list. If it looks like you don’t have certain things or feel you won't be qualified, ask early. Neither you nor your lender want to waste time on something that’s not going to work and the sooner it’s discovered, the sooner it can be addressed. Doing so helps to avoid problems down the road.
Tip 3: Be decisive.
Know what you are going to build. Have the details about the build sorted out. If you change your plans or budget after you apply, it can throw things off the rails. For example, a change in budget could mean that a revised appraisal report must be issued, thereby throwing timing off by a week or more, delaying the loan and the build.
Tip 4: Communicate clearly.
Like any relationship, good communication is necessary for a good relationship between you and your lender. Thoughtful, clear communication helps avoid misunderstandings and creates better outcomes. For major items, we recommend communicating over email so that there is a written record that all parties can keep on file.
Politeness goes without saying, and respectful and calm communication goes a long way. It’s alright to be assertive – and even demanding sometimes – but if you are overly rude, the lender may go so far as to cut ties with you.
Tip 5: Have the exit thought through.
A lender like Builder Finance Inc. wants things to go smoothly – smooth for the builder, and smooth for the lender. It wants everyone to make a profit.
Paying us off quickly is a more desirable outcome than a loan that requires multiple extensions, even if the latter would generate more interest and fees. (Yes, we really mean that.) A loan that is quick probably went well, and likely required minimal time from lender staff.
Tip 6: Be respectful of everyone’s time.
Speaking of lender staff – a lender’s biggest expense is probably staffing. Part-in-parcel with that, it behooves the applicant to demonstrate that they represent an efficient working relationship. Ask the lender for what you need, but be respectful and efficient about it.
This means knowing how to build and sell houses. It also means submitting accurate application information without fuss.
Spec Construction Loan Application Success
When it comes to your spec construction loan application, focus and a good attitude make the difference between a good experience and a poor one – and the difference between a good lender relationship and a weak one. So keep these tips in mind when you apply for your next – or first – spec construction project loan.
