24 Nov 2021

Is the Lot Price Included in a Construction Loan?

Non-bank lenders, such as Mortgage House, work with customers seeking construction loans. Many clients want to know if the lot price is included in the financial product.

The answer is it depends on the mortgage choice.

Construction projects pose a risk. Loans for these projects take a leap of faith. The lender funds a property that doesn’t exist yet. Data shows that 50% of construction projects fail at different stages. A construction project that doesn’t manifest is a loss for the lender and the investor.

It’s easier for lenders to fund a construction project designated for a lot that is already owned by the applicant. 

Otherwise, it poses another risk. If a problem occurs with the lot and the project, the lender loses twice. If the construction project falls apart, the lender ends up with the lot. 

This helps them recoup some losses. 

When an applicant requires a loan to pay for the construction project and the lot, lenders ask for collateral. Since the property doesn’t exist yet, they seek something to recoup in case things fall apart or never manifest. 

It’s possible to include the lot price in a construction loan. However, the lender will request a large down payment or a guarantor. A qualified guarantor helps move the application forward and the project too.

Lot Price and Construction Loans Conclusion

A construction loan can include the lot price. However, the applicant requires security for the financial product. Mortgage House loan specialists have the tools to explain the options. Contact our team for more information. 

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