Do I need and can I get a construction loan?

Question

I am putting in a PA for my first flip and using personal finacing and hard money to get it done.  My question is with  hard money being so expensive should I be looking for a bank for a construction loan for the 50k rehab?  If I have really good credit and pretty good available credit to used credit, will I qualify?

Tarik Turner · Answer

Leverage your cash. If the number are right you can find a hard money lender to fund your deal close to 100% with purchase and rehab included, leaving you with enough cash to close, service your debt and start searching for deal number 2. (Although with this being your first flip I would hold that cash for a while for those just in case expenses)

Melissa Kirchhoff · Answer

@Jeremy Karja - I usually recommend at least one of each: Small local bank; big bank; bank that you bank with or have accounts with. Local banks and credit unions can really shine for a lot but a few big banks really have an edge on the competition. I use Wells Fargo for a lot, they don't sell the majority of their loans to investors so I find they have a lot more flexibility (which can give them an edge like some smaller banks have but the benefits of big banks too).

Also, look into lines of credit, personal loans, private money, hard money. Run the numbers as many different ways as you can. Generally, I think you'll get the best rates from reno loans but consider every option possible and get creative if needed. (I used a personal loan with a 0% for 15month credit card for a BRRR type deal, the possibilities are limitless!)

I would guess that depends on who is lending you the money? I've approached that with friends and family (never really panned out in the property sense and stuff) but I agreed on a portion in based off how much money they put in. If it was an investor (not friend or family) then it would depend on what terms they agreed to. I would imagine most would want it structured like you would with a bank (you don't pay, they take the house) but honestly, I don't know. You would have to find them, talk it out, and get everything in writing!

Melissa Kirchhoff · Answer

@Jeremy Karja - At the very least, I would be talking to a few lenders about that and comparing the numbers. The numbers will be your answer.

Second, to the qualify, if anyone tells you you can qualify based off hearing good credit and pretty good available credit, they are crazy! lol You will have to talk to a lender about that, and there are wonderful variety of loans you can take advantage of, but you might as well check with them and again, see where the numbers lead you! I think the reno loans are amazing and hope down the line I can do one personally, but keep in mind, there's lots of red tape, so know how that game is played. And bonus tip: If you have a contractor you have a good relationship with who will listen and let you help (things like paint, and other cosmetics), it can be an excellent deal! <-- Just don't talk about that with your lender! =) (and before everyone else freaks out, it was a lender who told me he doesn't want to know that stuff and said just you two work it out on the back end!)

Good luck!

JD Martin · Answer

I used a construction loan when I built my house. I hated every aspect of it. Of course this is going back 20 years so there's been some updates in technology, but the process was painfully slow on draws and often incomplete. I would self-finance or get a block-sum loan before I would do it again. If your construction loan just strokes you a check for the full loan amount, that's not a bad set up.

Jeremy Karja · Answer

Thank you

@Melissa Kirchhoff and @Tarik Turner!  Great advise, will be looking into both!

Jeremy Karja · Answer

@Melissa Kirchhoff thank you very much.  Great tips.  Would you recommend then I talk to some small local banks to start to find the RENO loans first then look at other options like lines of credit, private money, hard money?

Also, not sure if this is your cup of tea or others but if I bring in private money for any part and back their money by the property do I simply structure it as a percentage on how much they are in on the total deal is how much of the home they own if something goes wrong or as a private investor they just get the house 100% regardless of the amount of money they bring to the table?

Do I need and can I get a construction loan?

Most Popular Reply