In today’s construction news, learn about Skanska USA, one of the world’s largest development and construction companies, which co-founded the Associated General Contractors of America (AGC) Task Force on Decarbonization and Carbon Reporting to address construction industry carbon emission reporting and reduction issues. Meanwhile, Construction loans cover land, blueprints, permits, labor, and materials. If your project costs more than expected, you can use a construction loan to access contingency reserves or interest reserves to avoid interest payments during development.
Skanska USA Joins AGC Task Force to Decarbonize Construction
Skanska USA, one of the world’s largest development and construction companies, announced it has co-created the Associated General Contractors of America (AGC) Task Force on Decarbonization and Carbon Reporting to address the construction industry’s carbon emission reporting and reduction challenges.
Over the next year, the Task Force will create an industry guidebook and decarbonization best practices instructional resources to harmonize carbon reporting. AGC’s climate change strategy, which includes the Task Force, attempts to shape climate change policies that affect the construction sector and reduce its environmental effect.
Clark, DPR, and Ryan Companies were original members, and Granite, Kiewit, Mortenson, and Turner joined later.
“The AGC Task Force unites some of the biggest construction companies to support the industry’s decarbonization efforts,” said Skanska USA Building’s national vice president of sustainability, Myrrh Caplan.
“The committee will create a guidebook to help contractors calculate and report emissions and set actionable goals to combat climate change.” We look forward to helping lessen the industry’s environmental effect and build more resilient communities.”
Construction and the built environment account for almost 40% of global carbon emissions that affect climate change. Contractors are researching ways to decrease their carbon footprint, including operational improvements, policy changes, and technology expenditures. Skanska has spearheaded decarbonization and sustainability efforts in the building industry.
By 2030, Skanska plans to reduce controlled emissions by 70% and achieve net-zero carbon emissions across the value chain by 2045. From 2015 to 2022, Skanska reduced its own carbon emissions by 55% (scope 1 and 2). The Embodied Carbon in Construction Calculator (EC3 Tool) was developed by Skanska, the Carbon Leadership Forum, and others in 2019. It calculates and evaluates the embodied carbon in a wide range of building materials. As companies and governments work to reduce carbon emissions, the alliance made the application “open-source” to democratize data and give transparency.
How Construction Loans Work
Original Source: Construction Loans: What They Are And How They Work
Build your dream home by starting from scratch. Construction prices and schedules can rise quickly. Construction loans cover the upfront costs of land, supplies, and labor.
A Construction Loan?
Short-term construction loans can cover all house-building costs. Construction loans can cover land, designs, permits, labor, and materials. If your project costs more than expected, you can use a construction loan to access contingency reserves or interest reserves to avoid interest payments during development.
Construction Loans Work?
Construction loans help future homeowners buy materials and hire workers. This money can also buy your building land. You can use your land as collateral if you own it. Construction loans normally last 12–18 months to cover the building process. After construction, certain loans automatically become permanent mortgages.
Construction loans are not backed by a house. Construction loan applications and approvals are also more complicated than mortgage applications. Your lender will likely review your architectural plans and financial status before approving funding. You may also need to estimate construction costs and timelines.
Construction loans are disbursed in installments. Instead, the lender will pay your builder in phases. Construction loans are lines of credit. Your lender will send an inspector before each draw to check construction progress.
Most loans simply need interest on monies drawn. After construction, some lenders allow you convert your construction loan into a mortgage. If not, you can get a mortgage or end loan to pay off your construction loan.
Building a home isn’t standardized. Construction-to-permanent and construction-only loans serve future homeowners’ needs. Owner-builders and significant home renovators have different alternatives.
Construction Loan Coverage?
Construction loans cover land, building permits, labor, and materials for your new home. Construction loans have closing expenses like regular mortgages.
Construction loan interest rates depend on the borrower’s creditworthiness, loan size, and term, much like other loans. Additionally, construction loan interest rates vary based on an index like the prime rate.
Rates are typically 1% higher than regular mortgage rates. Construction credit rates are 5%–6% currently. Construction loans are riskier than mortgages since they are not backed by a completed home.
Common construction loan criteria include:
Great credit. Construction loans demand a minimum credit score of 680 to reduce risk. Shop around and check guidelines because some lenders may require a better credit score. Before applying for a construction loan, improve your credit.
Low debt-to-income. Your DTI ratio compares your monthly debt payments (including the new construction loan) to your total monthly income. Your monthly payments should be higher if your DTI is lower. Your income should meet your bills and the new building financing. Construction loan lenders often limit DTI at 45%.
20% down. Construction loans need a 20% down payment, but lenders vary. Some lenders request a 25%–30% down payment. PMI is likely if you put down less than 20%.
Licensed builder. Before getting a construction loan, find a licensed, reputed house builder. Choose a builder who is a member of the National Association of Home Builders and has completed projects to a high standard. NAHB’s local building association directory lets you find a builder online.
Construction Loan Pros and Cons
Construction loans take time and money. Consider these pros and downsides before getting a construction loan.
Project and property valuation determine construction loan amounts.
The short loan payback term means you only pay interest during construction.
Current homeowners without enough equity for a home equity loan or line of credit can use it to develop a new home.
The loan amount is predetermined, leaving the borrower minimal flexibility for unanticipated needs.
After construction, the loan is payable in full. If the construction loan doesn’t immediately convert into a permanent mortgage after completion, you’ll have to seek a new loan to pay what you owe, which implies two sets of closing expenses and fees.
Construction loans have higher interest rates.
Construction Loan Selection
Choosing a construction loan lender might be overwhelming. That’s why it’s tempting to choose the first lender. Don’t rush this decision. Ask these questions to choose a lender that meets your needs:
Which construction financing do you offer?
What interest rates are available? Fixed or variable?
Do you charge fees?
Can I put down my land equity?
Construction draws—scheduled or percentage-based?
Can the builder request a material initial draw?
What if the home is delayed or construction prices rise?
Construction Loan Process
Get finance approval before starting your construction project. Because the loan isn’t secured by a property, this process is more thorough than for mortgages and other loans. Lenders must approve architectural drawings, a building timeframe, and a budget in addition to usual borrower conditions.
Construction loans require:
Great credit. Construction loan applicants must have a 680 credit score to limit lender risk. Some lenders require a 720 score. Before applying for a construction loan to build a house, enhance your credit score.
Payoff income. You need a good credit score and enough money to pay off your debts and the building loan. Your lender will need financial statements or other proof of annual income.
Low debt-to-income. A borrower’s DTI ratio compares all monthly debt payments to gross monthly income. Lower DTIs mean greater monthly construction loan payments. Construction loan lenders often want a DTI ratio of 45% or less to maximize the likelihood that borrowers can make payments.
20% down. Construction loans need a 20% down payment. Many lenders need 25%–30% of building expenditures. If you put down less than 20%, your lender may charge private mortgage insurance (PMI).
Project budget approval. You’ll need a land deed (or purchase offer), floor drawings, a line-item budget in the lender’s preferred format, a payment (draw) schedule, and a signed construction contract with change-order clauses.
Builder/GC approval. The lender will also require proof that your architect and builder are licensed and insured. Provide copies of the builder’s insurance certificates, resume, and financial stability. Include responsibilities for the architect, general contractor, and other project participants.
No-Money-Down Construction Loans
USDA or VA building loans require no down payment. Build in a USDA-eligible rural region with a USDA construction loan. USDA upfront and annual guarantee costs are due the month after loan closure.
VA construction loans are for active-duty troops, veterans, and qualifying spouses. To offset taxpayer costs, VA loans require a one-time VA funding fee of a percentage of the loan amount. Rolling the cost into the loan amount raises monthly payments.
Summary of today’s construction news
In simple terms, Skanska wants net-zero carbon emissions across the value chain by 2045 and a 70% decrease in regulated emissions by 2030. Skanska reduced its carbon emissions by 55% from 2015 to 2022 (scopes 1 and 2). Skanska, the Carbon Leadership Forum, and other partners created the Embodied Carbon in Construction Calculator (EC3 Tool) in 2019 to quantify and analyze embodied carbon in a variety of construction materials.
Meanwhile, Construction loans cover land, building permits, labor, and materials for your new home. Construction loans have closing expenses like regular mortgages. Creditworthiness, loan size, and term determine construction loan rates.