Much like with any other residential construction loans available, the answer to this question is both yes and no. Yes if you can lock in on a good rate with good terms from a reputable lender and no if you cannot. Choosing which type of loan to use can be relatively difficult with all of the various options available in the market today and so much of what makes things a “good value” being relative to exactly what it is that you need the loan to do and how your own credit looks. Some loans are catered to those with less than stellar credit ratings and some are only for those with excellent credit scores. An excellent credit score is considered to be a 750+ FICO score.
The reason that many people find so much confusion when met with construction loans is that unlike other rates, there is no set standard. You will never find a list of construction loan rates published online or in print anywhere because they vary so much and can have many different requirements attached to them based on what the construction loan was taken out for. Construction loans are always taken out to build something and are meant to cover the costs of construction, but there are commercial construction loans meant to create buildings and home construction loans taken out by individuals or couples to build their homes.
The conditions of a construction loan depend on whether it is taken out for commercial or residential use. The first thing that is usually asked is how much the building or home will be worth once it is constructed. Repayment of the construction loan does not begin until the work is finished and so lenders will look at the ability of the loan taker to repay. For individuals and businesses constructing their own buildings, this means looking at the credit worthiness and average income to determine how much of a risk for nonpayment there is. If the land being built upon is owned by the loan taker, it can be used as collateral or a cash injection can be required by the lender. A cash injection requires that a small percentage of the work be paid for by the individual or business. Cash loans are never given for more than what the completed work will be worth; this is done to protect lenders who will have to seize and sell the building should repayment be interrupted.
Because of all of the aforementioned factors, it is very unclear whether a construction loan will have the best rates and options for you. The good news is that so many other loan types have published rates and are much more predictable so once you do find out exactly what a lender is willing to offer you in terms of a construction loan, you can easily compare it to what else you could be getting. Remember to shop around for lenders and always choose one that is reputable!
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