Looking for advice..on construction loan - Posted by scott

Posted by Charles Clark on March 04, 2003 at 09:29:58:

If you can not get your local bank to work with you on this project, then you have the option of going with a Hard Money Lender. Once the property is fixed up, you can get a conventional re-finance, and you should not need to put any additioal money into the deal.

Looking for advice…on construction loan - Posted by scott

Posted by scott on March 03, 2003 at 20:43:52:

I own my home and I am wanting to purchase a fixer-upper to hold for long term rental.

I would like to obatain a construction loan for purchase and fix-up money.(maybe 6 month no payments)When the fix-up is complete, I would then obtain a new conventional loan to pay off the constrction loan.

will I need down payment money when I obtain conventional mortgage?

Any comments,advice or things I’m missing please let me know.


Re: Looking for advice…on construction loan - Posted by Ed Garcia

Posted by Ed Garcia on March 04, 2003 at 10:43:36:

Construction Loan


I have done construction loans.
What you are attempting to do is not as complicated as it seems.
You will need the following.

(1) LAND: Either free and clear, or 50% paid down for a land draw.
(Note) If you wanted, you could buy a lot with NO money down, have the seller subordinate their loan to a construction loan. I know that you already have your house selected Scott; so I just wanted to mention that for the benefit of others who might be reading my post.

(2) PLANS: These plans have to be approved by the city you’re building in.

(3) PERMITS: As you know, sometimes the City can require you to build either conforming structures or off sites, that the City wants. They will also have building standard for your area.

(4) COST: The Bank will require a COST BREAKDOWN of all of your expenses. They will want to see a cash flow chart to pay you on a VOUCHER system. As each phase is down and signed off by city inspectors, the contractor will be paid for that phase. (Note) interesting enough, the bank will take your cost break down and analyze it with their computers. If the cost is more, that will concern them, and they will cut it back. If it’s less, that will also concern them because they will think you short changed yourself in building this project. So In essence, the bank can be instrumental in verifying your cost. However, don’t ever count on anyone but yourself. Do your own, do diligence. (Note) the bank will require at least 10% liquidity on you the borrower.

(5) CONTRACTOR: If you are a Contractor, the bank will want to see your resume and you contractors license. If you are not a Contractor, then the bank will want to have a resume on your contractor as well as a copy of his license, and financial statement.

There are other considerations, but this is enough to get you thinking in the right direction. If everything is done right, you should be in the deal about 70% to 75% LTV on a NEW property. In fact I have seen better depending on area, and size of the deal.

Good luck Scott, I hope this helps.

Ed Garcia