How To Negotiate Lower Home Construction And Financing Costs During A Slowdown In Home Start

Breaking ground on a new home is an exciting moment. After planning each architectural derail and choosing the materials, you can already smell the fresh pine floors. 

The challenge is, construction loans have become harder to obtain in a recessionary environment. Like others buying or building a new home, you face a decision threshold: do you proceed with your home construction or delay it? 

Hard money lenders provide an alternative financing choice that could allow you to affordably finance and even lower the costs of your new home construction.

Hard Money Loans for Home Construction

To build your dream home, you will require a construction loan to pay for labor, materials, and related construction costs. But all of a sudden, your bank has demanded more collateral or refused the loan. Instead of delaying building your customized home, a hard money loan is an option. 

Hard money lenders provide home construction, auto, and other loans. In exchange for financing short term construction projects, you will be asked to pledge the new home as collateral. The loan can be secured in several days, allowing construction to begin without delays. 

Lowering Your Home Construction Costs 

In exchange for assuming higher credit and default risk, hard loan lenders charge higher interest rates.  In the current slow construction market, you could potentially lower and even offset the higher interest rate costs. In the first seven months of 2020, residential construction starts have fallen 4 percent over the same period last year. Nonresidential construction has fallen 25 percent. 

With the slowdown in home construction activity, home builders have an opportunity to negotiate lower construction costs. A lot of construction equipment and labor is sitting on the sidelines waiting to be deployed.

Negotiating Cheaper Material Costs

When weighing the benefits of a hard money loan, you should also consider opportunities to save on material costs. Wholesalers are sitting on reams of materials from canceled orders. Take advantage of the overstock to lower your material costs and even upgrade your home siding, roof, flooring, and other materials. 

How low can your costs go? In the second quarter of 2020, construction costs declined for the first time in a decade. With inflation at a low 0.4 percent, contractors and material suppliers have less pricing power. 

Before delaying the construction of your dream home, redo your cost analysis and talk to a hard money lender. The home loan lender will be able to give you a quote based on current interest rates, and your personal credit situation and collateral.