Question for Ed Garcia - Construction Loans - Posted by Chuck Perry - TX

Posted by Ed Garcia on November 03, 2000 at 10:05:55:


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 lot Chuck; 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 your 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 done 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 Chuck, I hope this helps.

Ed Garcia

Question for Ed Garcia - Construction Loans - Posted by Chuck Perry - TX

Posted by Chuck Perry - TX on November 03, 2000 at 02:08:57:

Hi Ed,

I just want to thank you for the advice you gave me when you called about your lending course. My schedule is too busy to attend now, but I hope to make it next year.


I have about an acre of land that’s been sitting in my corp, free and clear, for about a year now. I bought it because I was offered $250 for it. It now appears that luxury homes (500K-1M) are going up like dandelions in the area and lots are selling for 17-35K. My lot has a magnificent view and a “mansion” has just been built across the street from it.

I would like to go “long” and build a house on the lot for sale. Next week I’m going to ride out to it with a homebuilder and discuss plans. How should I pursue funding construction?