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The lending criteria for a development loan

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A property development loan is a loan designed to fund the construction of multiple properties under one title. It can be difficult to understand the lending criteria for development loans, as that generally depends on the type of development that you are undertaking. From talking you through the development plan process to breaking down what your financial situation should ideally be, Tiger Finance has you covered. Read on below to find out everything you need to know about the lending criteria for development loans. 

What You Need To Know About Development Loans

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One of the main things you will need to think about when applying for a development loan is whether you will need a residential or commercial loan. The way that you will know depends on the number of properties being built on the development site.

If you are building a smaller development of four units or less, it will fall under a residential development loan. These have a far simpler application process. If you are going to be developing more than four units, you will need to apply for a commercial development loan. 

Most lenders tend to have tough application criteria for development loans, which means that you might need to provide extra personal details and documentation in addition to the standard lending criteria.

How Do Residential Development Loans Work?

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Funds for any kind of residential property loan are generally released at the end of each building stage instead of in one lump sum. This is to ensure that you are continually able to pay your builder throughout the construction process. Because developments of residential properties are smaller than those of commercial, they are seen as a lower risk to the lender and have an easier lending criteria.

Things To Consider About A Development Loan

While you are looking around for lenders and getting ready to apply for a development loan, there a few things that you should consider.

  • Work out what you need.  Before you get started on any residential development, it’s crucial to work out how much you are going to need to borrow. Once you have a clear picture of how you will manage the costs associated a development, you can start searching for the right loan.
  • Have a strategy. If you are developing in order to later sell, or to live in one and sell the rest, make sure that you are clear on what you are going to do. This will help you to choose land in the best place and be clear on the type of development that you want to build.
  • There will be a complex application process. There is a lot involved in applying for a property development loan, much more than applying for a regular home loan.

Your lender will want to assess your current financial situation and previous financial history, while also assessing the viability of your development.

How to Apply For A Development Loan

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Your lender will need to assess two main factors before they can approve your development loan application. These are your development plans, and your current financial situation.

Development plans

Before approving your loan, your lender will want to know whether your development project is not only viable, but also profitable. You will need to put together a property development business plan to prove that it will be. This should include the following information.

  • The funds you have to put towards the project
  • Any development experience that you have
  • What contingency funds you have access to in case of any unexpected expenses
  • Your chosen builder’s experience and qualifications
  • Location and zoning information of your property
  • A detailed property description
  • A design concept for the project
  • A timeline for construction, from beginning date to finish date
  • The total estimated cost of the project

As well as this information, it will be helpful to include plans of what you are planning to do with the property once construction is finished.

While it is possible to put this document together yourself, you may wish to get the help of a specialist firm. As it is a very important document, it is important to make your plan as detailed as possible.

Financial situation

The lender will also need details of your current financial situation. This will include proof of your overall financial position, your assets and liabilities, and the security that you can provide for the loan. Your credit score and history will also come into account on whether or not you are approved.

Generally, you will need to provide some recent payslips, your bank statements, and copies of your group certificates to prove your income. This will allow your lender to work out how much you can afford to repay.

Where Does Tiger Finance Come In?

With Tiger Finance, we can help to get you a loan in four easy steps. You will have a free consultation with one of our specialists, and we will tailor-make you a loan. We will negotiate with lenders on your behalf before you are approved.

We have helped countless Australians with both good and bad credit ratings to be funded for their dream build. We understand that lending criteria from other lenders are too strict and can stop you from achieving your goals. That is wrong, and it should not hold you back.

How We Can Help

Our finance specialists can help you find the right development loan for your project. Development finance is a complicated topic, and that’s where Tiger Finance can help. We will find a loan that makes your dream project that much easier.

If you are one of the many Australians finding getting a development loan difficult, Tiger Finance can make the process simple and pain-free. Call us today to begin your dream development!

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