Construction loans have changed in the past few years. Years ago most of these loans came from traditional lenders. It is common that traditional lenders decision on construction loans waver with the market. So where do you go for a new construction loan?
In today’s market new construction loans may be harder to get. Generally, banks and credit unions tend to shy away from these loans, hard money lenders are still willing to work with these projects if they fit their qualifications. New construction hard money loans are short-term loans used to finance the construction of a property.
There are certain things investors should know when searching for hard money loans:
1. There may be a down payment: Find out how much of a down payment will be required. For example, on a construction-to-permanent loan the borrower can most likely work with the hard money lender for the construction of the property. Typically, the lender will require a 20% non-refundable deposit. This deposit can be rolled into the takeout loan.
2. Rates and Fees: In the past investors were hesitant to work with a traditional lender who wanted 10% to 12% interest and 3 to 4 points. Because traditional lenders don’t regularly work with construction loans, builders and investors alike will have to get used to the idea of higher interest rates. You will pay a higher interest rate using hard money. Hard money lenders are taking huge risks with new construction loans. Builders need to be prepared for interest rates ranging from 10% to 15% and 2 to 4 points on the loan. There is no getting around that.
3. Location: Location is key when it comes to new construction loan approval. A hard money lender absolutely must feel comfortable with the geographic location of the project. They will only underwrite a loan if they are confident of the location of the project.
4. Lot: The lot can be included in the construction loan. Find out if the lender is comfortable including the lot cost. In a perfect situation, the lot would be free and clear. However, many times that is not the case. Some lenders will loan as much as 60%-70% LTV of the appraised value and potentially allow the lot cost to roll into the loan.
5. Be Prepared: Investors and builders alike need to be prepared to have all necessary information for the lender. Lenders want an experienced builder with a minimum credit score of 600. They will also want a budget and all supported financials.
Understandably, hard money lenders are cautious with new construction loans, but they are willing to fund builders if they are able to meet the set requirements.
Level 4 Funding LLC
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2019 Level 4 Funding LLC. All Rights Reserved.