Construction loan for new building on owned parcel?

Question

I currently own a four plex on a large parcel.  I want to build a 2nd four plex next to it.  Does anyone know the process to put this in to motion?  I guess my main question is, would this void my current 30yr Mortgage and turn it in to a commercial loan?

Other than that I already have a contractor in place who can build it, but I don't know if I need to get plans drawn up from an architect first, or how to start it.  If anyone has done a similar project before or knows what to do, and what potential pit falls to avoid it would be appreciated.

Paul Sofia · Answer

Check and see with your current lender if they would be willing to let you subdivide and issue a lien release on the empty parcel.  It will depend heavily on what you owe on the mortgage.  If you have a lot of equity, they may not have a problem with or they may settle for paying down a little bit of the principle to compensate for the additional lot.  I was able to do on a couple of properties.  I did have a good banking relationship as well.

Ellis San Jose · Answer

I did something similar years ago & we had to get a whole new construction loan that paid off the existing loan balance on the building.  Once the construction was complete we could then get permanent financing.

If you are able to analyze the possibility of dividing the parcel into 2 lots.  You will still need to refinance the existing parcel & 4plex but it would be a permanent loan.  The new parcel would require a construction loan.

You will need to submit plans to the city so you would need an experienced architect to help you.

Paul Sofia · Answer

Bud, I would contact them and see.   You need to go to planning and zoning first to make sure it's zoned for what you want to do and if permissible, obtain the proper permits.  You may not have to have a set of architectural stamped plans.  Check with your state.  You should be able to buy a set of plans and save some money.  Check with your builder.

There are other things that you need to consider.  I can shoot you my number and I would be more than happy to take some time with you to discuss.  Just let me know.

Bud Dwyer · Answer

The current mortgage is a conventional one with %25 down.  I've owned it for about a year, so not much equity I'm affraid.  My loan got sold to Wells Fargo, so I don't know exited they would be to release a lien on a second parcel.

Any idea on how much the Architect would cost?

Construction loan for new building on owned parcel?

Most Popular Reply