3 Ways Construction Loans & Lending Have Changed With the Pandemic

Lenders, like so many commercial entities, have changed the way they’re doing business in the age of COVID-19. That’s especially true when it comes to new construction loans, which have been come even riskier as projects are delayed or terminated due to the coronavirus.

COVID-19 & New Construction Loans: 3 Facts Borrowers Must Know

For borrowers who need construction loans during the pandemic, here’s a look at how lenders are adjusting their terms and processes to mitigate their risks—and what you need to consider in order to determine:

  • If now is the right time to borrow and proceed with a new construction project
  • The funding options available and whether a convention or hard money construction loan is your best option

1. More Conservative Underwriting

Lenders have become far more selective in the types of construction projects they will underwrite during the pandemic. Many have also tightened up their underwriting processes.

In fact, while some lenders won’t fund new construction projects with all of the uncertainty around COVID-19, others are only underwriting projects that are:

  • Inherently sound
  • Being managed by experienced borrowers
  • Well located in primary (not secondary or tertiary) markets

2. Higher Interest Rates

For those who want to buy or refinance a home during the pandemic, low interest rates have been a boon. However, these rates are not the same for commercial developers taking out new construction loans.

These developers are seeing much higher, not lower, interest rates as lenders across the board adjust to new risks and uncertain markets. As of July 2020, industry experts report that interest rates offered by conventional lenders had skyrocketed anywhere between 100 and 300 points

That effectively means that interest rates for construction loans from traditional banks were hovering around 10% to 12%, up from the pre-pandemic norm of about 9%.

3. Greater Reluctance to Finance Land Purchases

Land transactions are viewed as especially risky by lenders in the age of COVID-19, with many refusing to fund loans for land purchases unless there is a very specific land use that will fit the given market. In many cases, lenders are even refusing to fund these projects without borrowers having everything “shovel-ready” when they apply for a loan.

Ultimately, all of these changes in how lenders are handling new construction loans may end up being temporary. For borrowers who need funding during the pandemic, here’s the bottom line: It may take a bit more loan shopping to find the right deal, and the flexibility offered by private equity lenders may be more important and appealing than ever before.

Get Fast Approvals & Funding for Construction Hard Money Loans in Colorado: Contact COHI, LLC

COHI, LLC is a premier private equity lender in Colorado with vast experience underwriting and funding construction hard money loans. For more than a decade, we have been working with investors across the state, offering some of the best pricing and terms for private equity lending in Colorado.

Call 970-922-3277 or email us now for more information about our private equity lending options for Colorado properties.

Free Evaluations  ˑ  Interest-Only Payments  ˑ  Fast, Easy, Quick Funding

Disclaimer: We do not make consumer loans or loans primarily for personal, family, or household use.

With a streamlined application process and responses within one business day, COHI is the lender you can trust for fast, flexible, efficient lending solutions, backed by honesty, transparency, and fair pricing. Plus, from the initial application through the final decision, you will always deal directly with the lender making the decision, not a broker.

From offices based in Denver, CO, COHI funds Colorado real estate loans, from $50,000 up to $3,000,000, for properties throughout the Denver metro area, the Front Range, the I-70 Corridor, and beyond.