the last 3-4 years real estate has emerged as a stable arena
for investing money and for generating significant profits.
Today many people and institutions consider investing in the
right deals and partnerships, but obtaining finance for their
ventures can be challenging, depending on the type of real
These loans are known as story loans – the lender must know about the specific details of the construction project before they sanction the loan. Typically these loans require interest only payments during construction and become due upon completion. Most of these are variable rate loans that vary from the prime rate to other short term interest rates.
Permanent loans or mortgages are meant to be paid over a longer period of time unlike construction loans. These can have fixed or adjustable interest rates. You can opt for loans from institutional lenders like banks, insurance companies and financial institutions or from private lenders. It is important to understand the terms of the permanent loans.
Construction to Permanent Loans
These loans involve only one loan application and one loan closing. The concept is based is based on the lender financing the construction of your home, and when it’s ready for occupancy, the loan is converted from a construction loan to a mortgage. This may be an expensive option, as you are paying a premium typically for the convenience of the loan. You do not thus have much negotiating leeway when presented with the interest rate on the back end permanent financing.
This type of financing is a hybrid of debt and equity financing and is usually used for expansion purposes of the premises. This is most advantageous for companies as it is reported as equity on the balance sheets making it easier to obtain standard bank financing. Basically, it is debt capital, with current repayment requirements, but with rights to convert to an ownership or equity interest in a company. It is essential to showcase a good profitable track record and a viable expansion plan.