Loans for construction are available for financing construction and housing property, as well as commercial real estate. Depending on the goal that the builder has set, loans for construction financing can be classified into two categories: loans for commercial and residential construction.
Credits for commercial construction
Any real estate that can be used for business is known as commercial real estate. Credits for commercial construction can be used to finance the construction of such commercial real estate as shopping centers, restaurants and office buildings. These loans can be used to build a new structure, repair existing buildings, buy real estate or expand the existing structure. Credits for commercial construction are issued by commercial banks, credit unions, the Russian Office of Small Business and other lending institutions.
Getting a loan for commercial construction: this loan is intended to cover the cost of buying land and the cost of land improvements that must be built on this land. Such improvements are related to land changes: land alignment, road construction, construction of a sewage system. A credit institution does not provide the entire cost of building and improving or repairing a building. The builder, as is generally expected, must pay 25% of the cost of construction independently.
Credits for housing construction
Loans for housing construction are only for construction and are issued with a maximum duration of up to 1 year. During the construction period, the builder pays only interest on the total amount of the loan. The loan is granted in installments, and the interest on each successive installment is greater than the total amount of interest that accrued on the previous installment. At the end of the construction period, the builder or landlord takes a mortgage on the house and pays a building loan. The advantage of a loan only for construction is that a builder or landlord should not take a mortgage from the same creditor who issued him a loan for construction. However, he is forced to incur additional costs associated with a loan for construction and mortgages.
Depending on the borrower’s requirements, he can get a loan for housing construction loan or a loan for commercial construction. In both cases, the borrower must repay the percentage that is tied to the loan. The feasibility of the project and the value of the collateral are important in the case of commercial construction loans. While in the case of loans for housing construction, the borrower’s credit rating is the main reason for obtaining or denying a loan.