Occasionally we receive requests for construction loans to complete projects that have already been started. There are a few issues that need to be addresses in these situations:
The most important thing to remember if you will be building and you will need additional funding to finish your project is to get your new loan put in place BEFORE you run out of funds. Lenders are keyed in to reserves which are almost as important to them as your credit score, your LTV or LTC. If you will need additional funds, plan on starting the construction loan process at least 2 months before you will need the additional funds.
The lender will request a letter of explanation about why you ran out of funds. In addition, they will want a detailed Line Item Cost breakdown detailing items completed and those items for which funding is still needed. The lender will also want pictures showing progress to date.
Title coverage and lien priority will become an issue. The title company is responsible for insuring clear title to the project. With work started before the construction loan funds that task becomes more difficult. The title company will then look to you to indemnify them against any possible liens resulting from pre- construction loan work. This is not an impossible situation. The title company will be lot more interested in you as a borrower in this situation. Having liquid assets for ‘reserves’ will make this situation a lot easier for all parties involved.
If you find yourself in this situation or anticipate falling into this situation contact us as quickly as possible. We can be reached @ (800) 688-2494