Hi there - my husband and I are preparing to build our new house (on land we already own). He is a contractor and will be doing all the labor. Our plan is to rent out our current home, which we own, once we move into our new house. We'd like to seek a construction loan to complete the build of our new home - does anyone know if a typical real estate rental business plan would be sufficient to show potential income increase? We're starting to build with cash, so we have some time, yet would like to get prepared now. I appreciate any insight from those who have done this!
Investor · Charlottesville Virginia · Member since 2021 · 348 posts · 346 votes
2y
Hello Laura,
Different lenders might require different things here but most of the time if you can show the lender a signed one year lease agreement that will be sufficient. They are not going to consider potential income though so you need to get a tenant in there, and it needs to be on a year long lease term to show that it is stable.
I would also highly recommend you starting the loan process now. You may need some of the capital you have as a down payment for the loan becuase new construction loans tend to have a low total LTV. Additionally, many construction loans work in draws where you do not get the capital until after the work is complete so you may have to front more capital than you think. You definitely don't want to get into a situation where you can't finish the house so I wouldn't wait on this.
The BP lender finder tool should be a great way to connect with some lenders but you might also want to check with some local small banks.