Knowing capital needs on a construction project is critical to ensure proper cash reserves and interest reserves. Rabbet users can forecast what funding sources are going to be drawn during which months on the project then ensure sufficient interest reserves remain available.
Growth Continues for Residential Construction Loans
The demand for construction loans has seen a steady growth over the past few years, and recent analysis shows the trend continuing in 2018. According to a study conducted by the National Association of Home Builders, one of the nation’s leading resources for housing and remodeling insights, the volume of residential construction loans has seen an increase of 1.7% in the second quarter of 2018.
The latest findings indicate a run of 21 straight quarters of continued growth in this segment. While the overall volume of residential construction loans is nowhere near the industry peak of $203.8 billion registered in 2008 (overall numbers for 2018 are currently sitting at $77 billion), the numbers show a healthy sustained recovery from the housing market collapse from a decade ago. The study identifies a growing loan base and improving credit conditions as the primary reasons for the continued growth, but notes that the demand is still greater than the available credit and that a significant portion of construction is being funded from other sources of capital.
Overall, the lender side of the equation is still showing signs of caution, increasing the loan pool at a slow and sustained pace. Still, taking a step back and looking at long-term numbers paints a very encouraging picture. Since 2013, the total volume of residential construction loans has grown by 89%. The fact that this growth has occurred at a slow and steady pace only reflects a more sober assessment of the market and decreases the chances of another market bubble.
Avoiding the Slippery Slope
While the findings of the study are encouraging for prospective builders, obtaining a construction loan is only the first step in the long process of completing a construction project. Managing a construction loan to its completion contains many stages and milestones, all carrying their own sets of risks that can set the project back and accumulate significant financial losses.
Liens are the primary cause of concern for any lender, but there are other factors that can create a significant increase in costs and even jeopardize the entire project. That is why it is essential to keep the residential construction project on schedule and ensure tidy and timely payments to all involved parties.
How Contract Simply Can Help
Contract Simply’s construction loan management software is a smart and elegant solution designed to enable its users to maintain a firm grasp on all aspects of a loan-financed construction project. By digitizing the entire body of project documentation (budget, invoices, receipts, inspection reports, etc.) and keeping it in a centralized, easily accessible database, the software is able to track the project’s unique requirements and ensure that all deadlines are met. The ease of access to all necessary documents also helps expedite the entire draw process, including payments to contractors.
The loan management app not only allows for easy collection of all relevant documents and records necessary to process a draw; it also automates a number of routine tasks and points out any irregularities or potential warning signs. Thus, it helps the project to comply with industry best practices and regulations.
By using Contract Simply’s software solution, lenders and borrowers get a tidy, detailed overview of all aspects of the project. This makes it easy to review documents at any given moment and to avoid any issues, such as delayed approvals and slow payments. Construction loan software simplifies the draw process and makes it easier to manage the numerous variables and countless documents required to keep track of a construction project.
After the dramatic market turbulence at the tail end of the previous decade, residential construction loans are enjoying a period of a cautious, yet continuous recovery. While the demand remains consistently strong, it is important to look at the broader picture and keep in mind that managing a construction loan is a challenge just as big as obtaining one. Contract Simply is dedicated to helping you successfully overcome that challenge.