All Forum Posts by: Nathanael Gill

Hi @Michael Brack,

Our experience was about the same as yours has been. We found a lender that would finance at 25% down, but no one would even look at 20% down. My understanding is that no Fannie Mae or Freddie Mac options would allow for financing any 3-4 unit home at greater than a 75% LTV position. That said, the modular company we were working with typically did manufactured homes, and they had a company that was willing to finance the construction of the modular with a chattel-like loan. We applied for the loan to get the terms, but it was very high interest, high closing costs, and the way they did calculations for DTI were odd (e.g. they would not account for the projected income of the non-owner occupied units in any way, so our income would have had to cover the full mortgage).

Our intention was to immediately refinance into a conventional loan after construction (we had plans drawn up and an appraisal based on those plans would have given us significant equity, $125/sq ft cost to $185/sq ft appraised), but in the end, the numbers were getting tighter and tighter. Two sets of closing costs (with the closing on the loan from the chattel company being around 4% of the total construction) meant that we'd have been better off putting 25% down. In the end we felt the chattel loan was risky and the company, that though a legitimate business, still had a predatory feel in terms of the high interest rates and relatively short loan duration. Something else we looked at was going with a private money lender for the construction and then refinancing into a traditional loan when construction was complete. This was our first construction project and it was getting too convoluted and risky for us, so we found another rental unit and purchased it instead.

I wish I could offer something more helpful, but our experience was not promising for being able to get financing on more than 2 units at 20% down. On the modular side of things, I would say that we were pretty happy that the initial appraisal based on the construction plans showed that we be able to gain some equity upon construction, even after accounting for closing and soft costs. The timeline on the modulars was also far better than what we could do with traditional construction. I am sure that is not the same in every market, but in our area where construction prices are very high, it would have been a good project if we just had some more cash to put down.

Thank you all for the responses. Since this would be new construction of a multifamily, I suppose the FHA options are out. I'll keep asking around the local banks and see if they can work with this. My hope was to be able to build with about 10% down and then appraise out of (or nearly out of) PMI due to the savings with the modular construction. Santa Fe has a horrible housing crunch that is made worse by the many short-term rentals serving the tourists, which means that there is plenty of long-term rental demand as well as high rental rates. I would rather take advantage of this market and not have to wait until I can put down 25% for a conventional loan. I suppose none of you have had experience financing new construction with less than 20-25% down?

I am looking for any information the BP community might have on financing a Multi-Family construction project. Specifically, we are looking to build in the Santa Fe area and occupy one of the larger units (these are modular construction, that we should be able to build for around $125/sq foot and hopefully appraise at around $200/sq foot if the area comparables are any indication), we will easily have 10% down, and the market rental rates will make the DTI ratio favorable for even FHA loans.

My main questions would be on whether anyone has had any experience with these types of projects, and if so were there any pitfalls or unforeseen difficulties you faced in the process (this would apply to both multifamily construction or modular home construction in general). I have had some difficulty finding local lenders that even do conventional loans for multifamily construction projects with less than 25% down, so any insight you all might have on finding a lender would also be appreciated.