Help on construction loan structure needed

[Olga Daisel]

I need help to get best case on my financial situation. I have a piece of land I want to use to build a house and sell it. I have approved plans and ready to start. The cost of land is closer to 1mil now and there is no lien on it. The problem is I need money to build a house, and I prefer not to pay interest monthly but rather a balloon payment in the end of life of the mortgage. I need to draw about 700k. Any suggestions if such a structure exists? To summarize:

- construction loan

- interest is payed at the end

[Adeola Oke]

You would pay interest on construction loan as you draw.

You can look for a partner who can pay for the interest and other unforeseen expense.

[Ed O.]

Sell the land. 

Pocket 1,000,000. 

If you're out of cash, why take on the risk of building? It's a great way to make $500,000 instead of $1,000,000. 

[Doug Smith]

Hi @Olga Daisel I actually do these loans, so here's what I would do. We would count the equity you have in land as your down payment. It appears you have plenty of equity to get the $700K you need. You could certainly estimae the amount of interest you would pay and take that as a draw to cover the build time. I don't think that would be an issue for you. For approval, you really need to have your GC chosen, your plans done, and your permits approved. It sounds as if you're there already. That's really when you kick it into high gear. One thing to be mindful of is that most legit lenders, including us, would want to see experience in building homes...or at least doing major renovations. If you've not done one before, that might be a concern for an underwriter. If you ever want to talk through it, PM me and let's schedule a chat. 

[Dennis Muno]

Quote from @Olga Daisel:

I need help to get best case on my financial situation. I have a piece of land I want to use to build a house and sell it. I have approved plans and ready to start. The cost of land is closer to 1mil now and there is no lien on it. The problem is I need money to build a house, and I prefer not to pay interest monthly but rather a balloon payment in the end of life of the mortgage. I need to draw about 700k. Any suggestions if such a structure exists? To summarize:

- construction loan

- interest is payed at the end

 Hello Olga,

It's great that you have bought the land already with no lien on it. That will make your financing a little easier. A bridge interest loan can be used from lenders you talk to who can do it. Monthly payments will be usually interest only with terms of 12-18 months. You pay monthly, interest only and then at the end of the period you'll need to either sell to pay the principal or refinance to pay off the loan.

This will give you money to build the house and then sell the property. Since you are looking to do construction, your experience will be asked?

How many projects/investment properties have you held, sold, fixed and held, fixed and flipped have you done in the last 3 years with your name on title?

If you do get a bridge, usually the financing will be based on your budget and or the post construction value of the property. If you are able to complete the property construction and get enough after selling the property, you then can use the proceeds of the sale to payoff the hard money loan in full and keep the remainder. Overly simplified, but this is a way for you to proceed.

[Olga Daisel]

@Doug Smith

Do you lend in Texas? I did 5 flips and 2 new construction houses, all high end. I have subs and know my costs.

[Doug Smith]

I do

[Magnus Wikström]

Hi @Olga Daisel,

I think this sounds fairly easy to be honest. I know one lender that still defers all interest payments plus origination fees until maturity, and 4 more who did this in June but has since stopped deferring anything, which says a little bit about where the market is at. Your equity value in the lot even outweighs the project costs. This shouldn't be difficult.