Spec home construction lending, at what point will banks loan

[Account Closed]

Currently I'm building spec homes on land that I buy with all cash using a construction loan that resembles a hard money loan with ~10% APR and points. My builds are fairly quick and have been completed in 2-3 months. I'm able to get projects done fast because most of the time I'm fronting my own cash at the front end to get permits, surveying ,design approval and sometimes even foundation completed along with several other deposits on windows, doors and cabinets. After I get the construction loan funded I immediately pay myself back (except for the land) and pay the rest of the construction expenses with the hard money funds. This means that I'm already several weeks into a project before I take on the loan, saving me interest but I'm taking on serious costs in points for a loan that only last 2 months. Additionally, once I have the loan pressure is on to take the first offer I'm given because of the daily interest costs on the loan, I've lost out on an extra $30k on one deal because I pulled the trigger 10 days too early on an offer.

I’ve tried to present bankers an offer to fund the loan but I haven’t found the right “combination” as Brandon Turner likes to call it.  This gave me the idea to reach out to the BP community for advice on the following:

• 1.Is there a specific stage in the build that would catch the interest of a banker?, such as:
  • a.Once plans are approved and permit is granted
  • b.Once foundation inspection is passed
  • c.Once framing inspection is passed
• 2.Are there specific banks that fund construction projects that I’m missing out on?
  • a.Are there special appraisals needed?
• 3.Should I give up all hope on saving hard money costs and write it off as a cost of doing business until I put up all the construction costs myself?

[Keith Bloemendaal]

I pay 4.75% on construction loans from my bank, who currently allows me 4 specs, I have another bank in my back pocket who is committed to 3 specs at 5.75%, it took me months to find the right banks, but all I can say is start with the little community banks. Good luck!

[Mike Wood]

I am paying 4.2% (interest only) on my construction loans, 80% LTC. I am not a full time builder (I am building rentals for long term hold), so I have income to pay the loans.  I know that my builder will fund at least two (2) construction loans at a time, possibly three (3).

I typically buy the land first with cash, they apply for the loan.  I dont start any permitting or construction prior to closing on the loan.

[Account Closed]

Thanks Keith and Mike,

These rates would be great but what are the upfront points paid on your loans?

Also, do your loans include the land cost when calculating LTC?

[Mike Wood]

@Account Closed  My bank is a local bank, not a national chain. I only deal with local banks as they are more understanding and easy to deal with.

For my construction loans, I pay one (1) point of the loan value, plus typically closing cost.  The 80% LTC includes all costs, construction, land, permitting, plans, survey, etc.

Once complete, I do permanent financing at 75% LTV (due to it being 2-4 units) based on an as built appraisal.

[Keith Bloemendaal]

Same as Mike, I pay 1 point plus appraisal, fees, etc...

Typically it doesn't matter to my bank whether we have bought the lot or not, but they are actually loaning me to buy lots (bought 9 this year and haven't touched 3 of them yet) at 75% LTV.

[Devon Garbus]

Hey guys,

do any of your banks loan in Florida?

[Account Closed]

@Keith Bloemendaal & @Mike Wood, Thanks for the input, still haven't found those type of deals from local banks as of yet but still pushing.  Right now I'm securing 3 lots with my own cash for Architectural review to build right after the snow melt next year.  

[Edward Lichtig]

I am a loan broker.  All I do is spec home construction financing.  We have a zero down financing option.  Rate at 6.5%.  gsladvisory.com

[Mike Reynolds]

@Edward Lichtig

I will send you a PM.

[Josh Cuthbertson]

@Edward Lichtig Sounds too good to be true. Ever loaned up in the Redding area? I'm interested. ;)

[John Weidner]

Originally posted by @Josh Cuthbertson:

@Edward Lichtig Sounds too good to be true. Ever loaned up in the Redding area? I'm interested. ;)

FYI I saw 6%...75% acquisition + repair or 55% ARV + ALL FEEs ($4-5k). whichever was lower at a bank meeting last week

[Josh Cuthbertson]

I'm still looking for lenders who deal in CA.