Hard money for new construction

5 Replies

Just wondering who has experience out in the BP world with using hard money for new construction. Have a vacant lot in So. Cal we want to build on but most big banks have pretty strict requirements that may make it too difficult to go that route. A couple big questions I have are, what type of equity is required? Can we be our own GC since we are licensed?

Thanks in advance.

Jose. 

You'll have to get a construction loan.

You can do the construction yourself. But you have to tell the lender that information. 

It's going to be important that they know that information. 

talk to Genesis.. there in LA they do HML building..

@Jose Tovar

I would check around, we wanted to speed up our process and were in a slight pinch with our DTI for conventional lending due to our volume of loans and pitched a bank model of construction financing with a higher interest rate to some of our private lenders and hard money lenders and are currently working our first build with private money this way. We owned the lot free and clear and they loaned on 75% of construction costs with first draw happening at 25% completion, 10% interest and 2 points (should be around 4-6 month lending term). We had pitched this to a couple hard money lenders and their costs were very high and we decided to try the private money route and had good feedback from a handful of folks. We are also our own GC and have completed a number of our own spec projects with bank financing so we did have a track record. Good luck.

I find the stricter requirements and longer underwriting with banks are likely worth it for new construction loans. HMLs usually charge interest against the entire loan amount, whereas banks usually charge interest again what is drawn. That can work out to be a huge difference in terms of interest paid out. This is not even counting the points HMLs charge.

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