Hello,

I had a fire in my apt bldg and was under-insured. The original sale price was $239k. I have an existing mortgage on the bldg which has $195k remaining on principal; only about $15k remaining from insurance money. I'm working with a general contractor to get an estimate for the rebuild that must occur in order to get the building generating income. It's currently vacant with all utilities shut off. The damage to the building was extensive and as a result 90% of the building is currently gutted. Due to the scope of the renovations we have to bring everything up to code and we plan to install fire suppression. Total cost for rebuild may be about $600k. Based on a pro-forma of rents I conducted using comps in the area, I think the ARV will be about $840k. It will be on par with some of the larger complexes in the area.

My loan officer so far said that if the ARV is higher than the loan amount then it will get approved. He told me they will be comparing the ARV against the sum of the existing mortgage principal and the construction costs. This means I need an ARV of at last $800k but potentially even more than that if I need to achieve some semblance of an 80/20 LTV.

So my first question is what should I expect to hear from a lender regarding what the ARV must be in this situation in order to have a chance at qualifying for a construction loan? And what will the other pieces of the puzzle typically look like for the construction loan process:

• should I expect to pay any points? 
• what's a going interest rate for construction loans?
• I've read I make interest payments only on what is paid out in the draws; is that true?
• who gets the draws?

If they expected an 80/20 LTV for the original mortgage is it safe to assume they will want the same for the construction loan? If so, does that mean if I have to borrow $600k then I have to come up with 20% of 600k, 20% of the ARV or something else?

Can anyone shed some light on this process based on your experience?

thank you