Hard money loans for new construction

[Paul Allen]

Have anyone used HML Vs construction loan when doing new construction on duplexes? If so how was the process?

[Odie Ayaga]

I can say it's difficult to get a good LTV on land with a hard money lender and is going to vary from lender to lender. If you want to talk to some directly and see what's out there let me know.

[George Despotopoulos]

@Odie Ayaga you're right. Ground-up construction loans will be a very low initial LTV/LTC (or maybe you'll have to come out of pocket if the land value is rather low) and the majority of the rehab budget in a hold-back. I'd prepare to pay interest on the total loan amount and not only on what's been disbursed.

[Greg Dickerson]

Originally posted by @Paul Allen:

Have anyone used HML Vs construction loan when doing new construction on duplexes? If so how was the process?

Banks are much cheaper and easier to work with if you are experienced. Some HM lenders do low LTC others are more aggressive and specialize in new construction. You will need a GC and good credit as well as liquidity and assets for the banks to work with you.

You could also do a lot subordination deal with the landowner to help offset LTC as well.

[Paul Allen]

@Odie Ayaga Well in this situation the land has already been purchased and I’m in the final stages of getting site plans approved and ready to issue permits. All of the soft-cost is done just wondering about getting lending for the hard cost.

[Paul Allen]

@Greg Dickerson Since I’ve already purchased land and will have done all of the soft cost and getting approval through the city will banks count some of this cost towards the down payment?

[Odie Ayaga]

@Paul Allen having the land purchased and permits handled helped to get a higher LTV something like going from 50% to 65%.

[Rylan Lacey]

If you own the land outright you can use it to put up for collateral and that'll cover any additional down payment on the loan. In my area the going rate for Ltv is 65%-75% or more depending on experience. The soft costs will not be counted into the down payment but it will be a factor in determining how strong you are. Nearly all HML use draw systems so if you don't have a ton of money in the bank make sure you talk with the lender about putting the soft costs into the loan so that on your first draw you get reimbursed for your soft costs and some money to play with. Talk with your GC/subs and explain your draw process and when you'll get paid. For example I tell my subs (I'm my own GC) that whatever you can get done by Friday it'll get inspected and I'll pay you on next Wednesday. Usually they're cool with that if you're up front with them, and that ensures you're never too out of pocket waiting on your draws. Pump some extra money in contingencies to cover some of the heavier payments towards the end of the project if need be