How Do I Get New Construction Hard Money Loans
How hard is it to get a construction loan? The process of securing a hard money construction loan is much different than that of a conventional mortgage. Unlike a conventional loan, which requires a significant amount of paperwork, a new construction loan for investors requires relatively light documentation. Once you have completed the new construction loan application, the loan officer and underwriter will review the deal with you and order an appraisal if the deal fits! The underwriter will ask questions about your experience, as well as request copies of the construction plans and other relevant documentation. From that point, ABL will issue a written term sheet that outlines all the loans details so there are never any hidden fees. The loan then moves to processing where the few required documents are collected, and ultimately the loan is closed by an attorney.
What Are The Benefits Of A Private Lender Construction Loan
With most hard money loans, the loan amount is based on the as-is house or lot value combined with repair or construction costs. An additional benefit of a hard money construction loan is that there is no minimum credit score. However, keep in mind that unlike hard money fix and flip loans, experience is essential for an investment construction loan! ABL is willing to fund up to 70% of the land value and 100% of the construction budget, capped at 75% of the ARV. With interest rates from 9% to 11%, points ranging 1% to 2% and a loan term up to 18 months, seasoned investors rely on construction loans like these for finance their business.
Any seasoned investor knows how crucial a quick close can be. Real estate investing is a growth industry, and good deals move quickly. As experienced hard money construction lenders, we close loans in as little as 48 hours, and have an average close time of 10 days, unlike a conventional loan which takes a minimum of 60 days to close.
Lendingone New Construction Loans In Florida
LendingOne is a private money lender offering short-term mortgage loans to real estate investors for new construction investment properties across the state of Florida. Locating new construction lenders in Florida that understand your market is very important. Get a private money loan for an investment property purchase, refinance, equity cash out, rehab or new construction in the Florida area.
New Construction Loans
New Construction Lenders Up to 85% of Project Cost
LendingOne New Construction Loans can provide the cash you need to grow your real estate investment property portfolio:
- Competitive financing for investors, builders and developers for the acquisition, development, or construction of ground-up properties
- Fast approvals and closings for new construction projects
Advantages of our New Construction Loans in Florida
- Loans from $250K to $10M
- 12-24 Month Interest Only
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How To Qualify For A New Construction Loan
Borrowers must meet many financial conditions in addition to having their project designs approved to qualify for a construction loan.
Lenders will usually start by looking at your debt-to-income ratio and credit score. While your lenders particular requirements will vary, many will want a credit score of 650 or above.
When applying for a construction loan, borrowers must also have a down payment, between 20% and 30%.
When looking for a lender, make sure to shop around there are a variety of possibilities for acquiring a construction loan, each with its own set of conditions
You must also submit the projects construction plans to gain final approval for a construction or renovation loan. Lenders will want to examine the propertys exact drawings and a team of certified builders working on the project.
Its vital to understand that, while completed blueprints are required for final loan approval, you can get preapproved for a construction loan before purchasing a home.
How We Chose The Best Investment Property Loans
We reviewed 19 lenders and their loan programs before selecting our award winners. We considered the types of investment property loans they underwrite, down payment requirements, the interest rates and APRs, minimum and maximum funding limits, and the lenders underwriting process complexity.
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Is It Hard To Get A Loan For An Investment Property
Qualifying for an investment property loan is more challenging because lenders view investment properties as a greater risk. Lenders will want to make sure that you earn enough to afford monthly mortgage payments in the worst-case scenario, such as your tenant stops making their payments.
Compared to loans for your personal residence where you may qualify for a 0% or 3% down program, lenders want to see a larger down payment on investment properties, often between 20% to 35%.
To get the best rates and terms, youll want to get a traditional mortgage, which is why most of our winners here have come from that sector. However, you can max out at four conventional loans for investment properties. If you want to keep going, youll need to convert to private and hard money lenders
What Can A Construction Loan Be Used For
A construction loan can be used for a number of projects, depending on your lenders requirements and terms of agreement. Here are a few of the ways to utilize an investment property construction loan:
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Purchasing raw land
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Building an addition to a property
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Framing and finishing a house
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Building sheds or other structures
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Adding a garage
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How To Get A Construction Loan
Before you can get the financing necessary to start your construction project, youll need to get approved for a loan. This process is typically more rigorous than for mortgages and other loans because the loan wont be securedor collateralizedby a home. In addition to imposing traditional borrower standards, lenders also will need to review and approve architectural plans, an estimated construction timeline and a proposed budget.
To be approved for a construction loan, you will need:
What Are Construction Loans
Construction loans are short-term financing options for new real estate or renovation projects. They are used to pay for the costs of building a new house or upgrading an existing property. Construction loans are only applicable for the time it takes to complete the project, and users only borrow what they need. These loans are distributed directly to the contractor in segments called draws. Draws are marked as certain elements of the project are completed, such as the foundation being poured or the frame being built.
The main appeal of construction loans is that they enable home buyers or investors to build a new property though, the freedom to customize a property does come at a cost. For example, construction loans are known to have higher than average interest rates. The structure is typically set up to protect lenders who trust that a project will be completed correctly and that it will be worth a certain amount when done. However, homeowners should not rule this option out because there are several perks to this form of financing.
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New Homes Have Fewer Maintenance Costs
Choosing great tenants should eliminate unnecessary maintenance and repair costs, but if you own an older real estate investment property, youll probably still spend money on those obligations at least once a year maybe even more.
Financing a BTR property means your brand-new home shouldnt require nearly as much maintenance. You can save that money to put toward another property for your portfolio or some other pending financial need. Even saving it so you have cash on hand for an unexpected opportunity is better than spending it on necessary repairs.
How Many Years Is A Construction Loan
Construction loans of all kinds are short-term, lasting only about six months to two years. This term gives enough time for the contractor to build the property and for you to move in. Because of this shortened timeframe, the lender must receive a detailed and realistic budget with a construction timeline. During the construction period, or each time you want to draw more loan funds, the lender will make inspections to see how the project is progressing.
After the project concludes, a construction-to-permanent loan transitions into a fixed or adjustable-rate mortgage. Terms for these kinds of mortgages are usually 15 to 30 years. All told, you may be paying on a construction-to-permanent loan for anywhere from 16 to 32 years.
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What Does A Construction Loan Cover
Some things a construction loan can be used to cover include:
- The cost of the land
- Contractor labor
- Building materials
- Permits
While items like home furnishings generally are not covered within a construction loan, permanent fixtures like appliances and landscaping can be included.
Its important to discuss these items with your lender, specifically what will be included in your loan-to-value calculation, according to Steve Kaminski, head of U.S. residential lending at TD Bank.
Oftentimes, construction loans will include a contingency reserve to cover unexpected costs that could arise during construction, which also serves as a cushion in case the borrower decides to make any upgrades once the construction begins, Kaminski says. Its not uncommon for a borrower to want to elevate their countertops or cabinets once the plans are laid out.
How A Construction Loan Works
Construction loans are usually taken out by builders or a homebuyer custom-building their own home. They are short-term loans, usually for a period of only one year. After construction of the house is complete, the borrower can either refinance the construction loan into a permanent mortgage or obtain a new loan to pay off the construction loan . The borrower might only be required to make interest payments on a construction loan while the project is still underway. Some construction loans may require the balance to be paid off entirely by the time the project is complete.
If a construction loan is taken out by a borrower who wants to build a home, the lender might pay the funds directly to the contractor rather than to the borrower. The payments may come in installments as the project completes new stages of development. Construction loans can be taken out to finance rehabilitation and restoration projects as well as to build new homes.
Construction loans can allow a borrower to build the home of their dreams, butdue to the risks involvedthey have higher interest rates and larger down payments than traditional mortgages.
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Construction To Permanent Loans
Construction to permanent loans are available through some banks and offer short-term construction financing, followed by a traditional 30-year loan. In order to qualify for this type of financing from a bank, the borrower must meet all of the requirements for a traditional 30-year loan. These loans are typically designed for homeowners who plan to live in the property after completion, and likely aren’t appropriate for investors looking to sell the property.
Do You Want To Simplify The Borrowing Experience
Decide if you want to go through the loan process once with a construction-to-permanent loan or twice with a construction-only loan. Consider how much the closing costs and other fees of obtaining more than one loan will add to the project. When getting a construction loan, youre not just accounting for building the house you also need to purchase the land and figure out how to handle the total cost later, perhaps with a permanent mortgage when the home is finished. In that case, a construction-to-permanent loan can make sense in order to avoid multiple closings. If you already have a home, though, you might be able to use the proceeds to pay down the loan. In that case, a construction-only loan might be a better choice.
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High Demand For Entry
As we touched on earlier, one of the reasons many investors are turning to build-to-rent loans is because. In many markets, theres almost a complete absence of entry-level housing options.
So, in effect, people are unable to find affordable housing because all of the existing properties are simply out of their price range.
Its a major problem, but one that build-to-rent lending can help solve.
In countries like Australia, many policymakers are strongly considering it as the only option to keep their housing market from creating costly problems.
In the U.S., a similar plan was used known as tax credit housing and proved so popular that senators from both parties worked to increase its funding by 50%.
The takeaway here is that there is a real demand for new homes in many markets throughout the country. Therefore, using this kind of financing to supply it should put you in a very profitable position.
Compare Construction Loan Lenders
There are a few different factors that you should keep in mind when selecting a home improvement loan or lender. These include:
- Low rates: The lower the rates on your construction loan, the less youll end up paying in interest over time. You should look for a loan with rates that are as low as possible.
- Flexible down payment requirements: While some lenders require a standard down payment of 20%, others are more flexible. Depending on how much you have saved up, you should look with a lender with flexible down payment requirements.
- Flexible credit score requirements: Just because you dont have a perfect credit score doesnt mean you cant get a construction loan. Some lenders allow applications from borrowers with fair credit.
- Geographic location: Make sure to choose a lender that services your area.
- Customer support: You should look for lenders with a history of high customer satisfaction and robust customer support.
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Best For Veterans: Veterans United Home Loans
Veterans United Home Loans
Why We Chose It: We chose Veterans United Home Loans as our best investment property lender for veterans because the firm specializes in VA-backed mortgages with experts who understand this loan program better than anyone else.
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Offers 24/7 customer service over the phone
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Has online application and pre-qualification
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Employs advisors from each branch of the armed forces
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Doesn’t offer home equity loans or HELOCs
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Information on FHA, USDA, and conventional loans is harder to find on its website
Founded in 2002, Veterans United is a full-service lender that specializes in VA loans for qualifying veterans, active service members, and their spouses. They are one of the largest VA mortgage lenders in terms of volume in the United States.
Investors benefit from flexible qualification guidelines, lower rates, and monthly payments, no down payments, and no private mortgage insurance. Veterans United has VA loans for as little as 0% down, and they understand how to make the VA loan work for an investor and still remain within the programs guidelines.
Among the products offered are fixed and adjustable-rate mortgages, jumbo loans, refinance loans, and cash-out loans. Loan rates range from 4.625% to 5.5%withAPRs between 4.991% and 6.117% depending on the loan product.
Understanding The Value Of Construction To Permanent Real Estate Investment Loans
Real estate investing is all about finding opportunities and capitalizing on them.
Learning to recognize these opportunities takes time and experience. You look at a run-down property and see a perfect fix and flip. You look at a foreclosed house and see an ideal single-family rental. You see a vacant lot and see consistent positive cash flow.
But you dont always see the end of the story at the start. Thats why investors need flexible financing options that let them capitalize on opportunities and leverage their cash, all while avoiding time wasters.
One way to gain flexibility is by finding the right lender with the right loan products. And perhaps the most flexible financing option is working with a lender that covers both rehab and rental holding costs.
At Lima One Capital, we listen to our customers, and they have been clamoring for a construction to permanent financing solution. We are pleased to launch Fix2Rent and Build2Rent solutions.These financing options serve real estate investors who want financing that covers both rehab or construction and rental.
Why is this kind of Fix2Rent or Build2Rent loan solution valuable for investors? These program highlights reveal the reasons you may want to consider construction to permanent financing for your real estate portfolio.
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Reasons Smart Investors Use Build
To many, build-to-rent financing may be the secret to reviving struggling economies in the wake of housing market declines.
While that may be true and is certainly a worthwhile reason to leverage this kind of lending there are six reasons these loans are also great for building up your rental property portfolio.
Construction Loans Vs Owner
Borrowers who intend to act as their own general contractor or build the home with their own resources are unlikely to qualify for a construction loan. These borrowers will have to take out a variant called an owner-builder construction loan. It can be difficult to qualify for these loans. Therefore, potential borrowers must offer a well-researched construction plan that convincingly lays out their home-building knowledge and abilities. The borrower should also include a contingency fund for unexpected surprises.
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Whats The Difference Between A Construction Loan And A Renovation Loan
The difference between construction loans and renovation loans lies in the type of project. Construction loans are used for new properties with definitive project plans. Those who use construction loans will also typically transition into a regular mortgage at the end of the construction project. In contrast, renovation loans for investors are used to purchase fixer-uppers or to renovate existing properties. These loans can be used for cosmetic and structural fixes, like insulating a house or upgrading a kitchen.
