How do I secure a line of credit for new construction

Question

I am a real estate broker in Florida and in Wisconsin and I own a construction company in Wisconsin and I am interested in building new homes and selling them. I have a buddy that is in mortgage but unfortunately we are not able to secure deals with his company because most buyers have better financing or cash options and this is taking me out of the game. I am looking for away to get a line of credit that would allow me to lock in more deals. I don't own a home and my credit is about 650-700 depending on where we are with current construction projects that force me to use more credit.

Marcus Auerbach · Answer

If you own the land outright, you can get a construction loan for labor and materials. I've done that, it's a lot of paperwork, because you have to hit milestones for each drawn and proof to the title company that the work has been done and the milestone reached.

Brandon Croucier · Answer

We can do 80% of the total cost of the project on these. I'll PM you with some better numbers.

Jay Hinrichs · Answer

here is where market rates are.  And what I am personally seeing the Market place today.Commercial bank/ community bank were you have significant deposit relationship and long term relation ship..   7 to 10% plus 1/2 to 1.5 points.. these are relationship and experience and capacity lenders.. Capacity is ability to execute and retained cash.. Cash in the bank. You can forget any large bank like Wells boA or large regional s I highly doubt with your scenario they will provide any credit to you.then you have the Brokers who are responding.. they set you up with a direct HML that does vertical Rates 10 to 15%  and points 3 to 6.. of which the brokers take 2 to 4 points for setting these up for you.  there are HML like Builders Capital Lima one Kiavi etc. And of course you will have appraisal costs closing costs inspection draw fee's etc. Most lenders will only advance on work that is done and in place.. so unless you can get your subs on Net 30 you will be forced to front the draws until your back-filled.

Stuart Udis · Answer

@Malico Watson You’re looking for a construction loan. Leverage will vary but expect to be somewhere between 75% and 80% LTC. Banks will price their construction debt at WSJ + 1 point. The rates are usually adjustable with a floor. Sometimes, the rate can be a bit lower but that’s where you should expect to be. Alternative lenders will be a few points higher. Also important to work with lenders who have a well oiled construction loan administration team. I hear countless horror stories from borrowers who get held up due to bad bank administration policies which are most impactful when you’re working on a draw schedule. Therefore always seek out existing clients to ensure the bank is operating the construction loans on their books efficiently on behalf of the borrowers. A line of credit can also be a useful tool to supplement your business. Since construction loans fund their draws  based on completed  work, having the additional capital to advance the construction progress is helpful. Since you have an active construction business you should be able to use your past and projected earnings to secure a line for this purpose.

Lastly, when a lender says finance 75%, 80% etc. it’s important to understand what’s included. The 75% LTC lender that capitalizes an interest reserve and finances 75% of the closing costs will likely require less cash out of pocket than the 80% lender who does not include a capitalized interest reserve and doesn’t finance some or any of the closing costs. This is just an example of the various budgetary numbers to look out for but you can’t go solely off of a LTC % representation.

Malico Watson · Answer

Thanks so much Jacob. What if we buy the land before hand. If so what would the rates be? Normally this is where we hit a wall. The cost of the loan is so expensive that there is no room for much of a profit. It all looks good in the front until all the costs are put together. This is why I was looking for a line of credit.

Jacob Sherman · Answer

You are able to get a hard money style loan 50% of purchase of land , 100% of construction upto 65% of the ARV

How do I secure a line of credit for new construction

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