How to finance the development of your property can be a tricky and mind blogging affair to navigate. This issue becomes even more intimidating for first time and small investors. However, in this volatile world wherein financial conditions and markets are constantly changing, sophisticated investors also find this task nerve-wracking. To ensure best chances of success it becomes extremely crucial to understand which property development loan suits the needs of your project and is viable for your present financial conditions. One must possess right information to navigate through this complex domain of banking and finance.
Check what the purpose of your Property Development Loan is
• The first thing you must do is to understand the purpose behind funding. If you are looking at developments of up to four units, such as duplexes, triplexes and townhouses, residential property development loans can be availed.
• Commercial property development loan is more feasible when the scope and size of the project expands beyond four units.
• It should be remembered that the residential and commercial lending sectors are not really the same but different a lot, especially when it comes to their loan features and fees or even the process for loan application.
• The property development loan also applies to the construction of a new property, a commercial complex, shopping mall, restaurant and a loan for re-extension of your already-available property.
What are Residential Property Development Loans?
Residential property development loans are designed in a very similar fashion as residential construction loans. The funds for development are released at the end of each building stage: deposit, base stage, frame stage, lock up stage, fixing stage. This structure enables you to pay to your builder on a regular basis. In case of any residual amount, the corresponding sum is released after the conclusion of project. The banks charge a standard application fee when one applies for such property development loans.
Commercial development loans have a significant impact on the paperwork you need to provide to access funding. The loan features one can access depends upon the quality of paperwork. Apart from standard criteria one needs to meet for residential loans, it is expected that you furnish an entire range of details and extra information. Some of the which bank look at are mentioned below:
• Full project details including the architectural plans and legal sanctioning of the project
• Experience and reputation of the applicant
• Pre- sale evidence of the property being developed
The strength of the application also has an impact on the fees that is charged. A fee charged tends to vary between 0.50% and 1.50%.
Funding of Property Development Loans
Banks and financial institutions generally design the Development loan in such a way that the lender provides around 60 to 80 per cent of the total cost of the project. It will be expected that the developer and his/her equity partners also contribute some funding towards the development of the project.
For a 2-4 dwelling project (i.e. residential purpose) loans, the applicant typically expects 20 per cent of the funds. This of course is influenced by variety of factors. There are many intricate aspects to be considered in these loans. Do work out the math and see if there are cheaper loan options available.
In other words, you will be able to obtain a property development loan, depending on the size and nature of the project. So, do keep these aspects in mind and make the most of these loans.