construction loans ?

8 Replies

Is there a construction loan expert on the forum ? Besides the fact that I need to talk to one, I have a few questions that other may be able to answer -

  1. What sort of guarantee do banks look for in giving a construction loan ? Can you put up the lot that you are constructing on and/or other property as Collateral ? 
  2. Can someone, not on the title of the lot give a loan guarantee ? 
  3. Is it OK for an LLC to own the lot and get the loan against the LLC, maybe with a personal guarantee ?
  4. Anything else the lenders look for, besides the credit history etc to approve a loan ?

Thanks in advance for your input.

I have heard of someone using option 3 which has a pool of investors involved in the LLC and the bank gave a construction loan against it.

Hey @Matt K. I have not got my loan yet but I think I do understand the process now. I am in the process og forming my LLC and closing escrow on a lot.

Yes an LLC is the easiest thing to fund or you can do it an individual too, as long as your income or the income of the LLC members adds up to the loan installment payment requirements. While during construction the payment is interest only, the bank may look at your ability to make full mortgage payments beyond the construction process. @Upen Patel was very helpful in explaining the process, you might want to connect with him. Cheers 

I had an investor share with me today that he uses a construction loan to purchase and rehab his properties and then converts these to a conventional mortgage. He stated he can get the construction loan for 20% down at 5% interest only each month. The kicker that I can't figure out is that he says he gets back his 20% down payment made to get the construction loan when he changes over to the conventional mortgage loan? How is he getting back his down payment for the construction from the proceeds of the mortgage loan? We are talking about a 34k purchase with an additional 8k for repairs. Total construction loan $42k

Originally posted by @Chuck Walker :

I had an investor share with me today that he uses a construction loan to purchase and rehab his properties and then converts these to a conventional mortgage. He stated he can get the construction loan for 20% down at 5% interest only each month. The kicker that I can't figure out is that he says he gets back his 20% down payment made to get the construction loan when he changes over to the conventional mortgage loan? How is he getting back his down payment for the construction from the proceeds of the mortgage loan? We are talking about a 34k purchase with an additional 8k for repairs. Total construction loan $42k

The value of the property, ARV=After Renovation Value, is now higher allowing the person to refinance and pullout the equity. For example 100k property with 20k down payment. Renovation costs comes to 100K. Total in 200k but, the ARV is now 300k. A 80% primary mortgage will make 240k available for distribution $200k goes back to the mortgage holders which leaves them with $40k returning the extra 20k and putting 20k in their pocket. They call IT BRRRR.

@Calvin Lipscomb

Calvin

I hope this question is not too far out of discussion.

I am looking at purchasing a lot to put 2 doors on it

Then BRRRR them

I will purchase the land out right through a tax sale.

I want to use a construction loan to finance the placement of 2 manufactured homes.

Question is if using a construction loan and getting a beginning appraisal, will it effect the final appraisal value during the cash out refi?

Are there lenders out there that will give a construction loan knowing that at the end I will be refinancing to another lender or will they do both?

Thanks

Thomas De Los Santos