- Competitive Terms
-
Construction Specialist
- Quick Approval
- Easy Process
- Mid Project OK
- For Sale or Rent
Nonbank new construction loans, also known as new construction hard money loans and private homebuilding bridge loans, provide maximum leverage and scalability for investors and homebuilders. We also have delayed purchase bridge and mid project financing.
What is a New Construction Loan?
- For refi products post completion without seasoning or occupancy, please see DSCR loan
How to Qualify for a New Construction Loan
Call 609-468-9324 or email [email protected] and we can pre-qualify you based on your experience as an investor, a few underwriting points, and some info on the project or strategy. We can help with your purchase scenario, vertical financing for property you already own, mid project refi, or just current info on new construction loan programs. Same day soft quotes, and 1-2 business days preapproval for new construction loans. Hope to earn your business!
New Construction Loan Calculator
Fix n flip loans and New construction loans are typically 12 month, 18 month, or 24 month balloon loans, interest only, where the borrower intends to repay the loan by either refinancing (taking out) the bridge loan with a permanent loan, or selling the property and repaying the loan at sale.
The “Rehab Holdback Use Factor” is a simplification to help estimate the total monthly interest payments. Our lenders typically don’t charge interest on undrawn amounts, so we’ve included this percentage to adjust for not using the entire rehab holdback amount from the beginning of the loan. Our lenders typically have no minimum term length. They get you on the up front points and fees and then the total interest paid is variable depending on how soon you draw the money and how many months until you pay it back, with no minimum interest.
| # of Months to Sell or Refi | 3 months | 6 months | 9 months | 12 months |
|---|---|---|---|---|
| Total Interest Estimate, Sum of Monthly Payments ($): | ||||
| Output: Up Front Loan Costs: | ||||
| Output: Up Front Appraisal and 3rd Party Fees: | ||||
| Total Up Front Loan Cost including 3rd Party ($): | ||||
For a fix n flip example, $250k purchase price and $50k rehab budget, you could model 85% of the purchase price for purchase loan amount ($250,000 x 85% = $212,500) and $50,000 for the rehab holdback amount (rehab budget).
For a new construction loan example, with $50k lot cost and $250k project budget to build a house, you could model $50k down to pay for the lot in cash and then borrow $250k rehab holdback amount, so $0 purchase loan amount and with $250,000 rehab holdback amount.
Terms and leverage parameters vary for fix n flip loans and new construction loans. Call us to check your assumptions 609-468-9324.
New Construction Private Loan vs. New Construction Bank Loan
| New Construction Private Loan | New Construction Bank Loan | |
|---|---|---|
| Loan Amount | $150k-4mm | $150k-4mm |
| Loan Term | 12-24 months | 12-24 months |
| Property Types | Ground up construction of 1 or multiple 1-4 unit houses for sale or for rent | Ground up construction of 1 or multiple 1-4 unit houses for sale or for rent |
| Max Leverage | 80-85% of purchase price + construction hard cost | 75-85% of purchase price + construction hard cost |
| Time to Close | 20-30 days | 30-60 days |
| Borrower Income and Asset Verification, DTI | No | Yes |
| Shows as a Trade Line | No | Yes |
| Lender imposed maximum # of projects | No | Yes |
| Rates, Points and Fees | Private bridge rates | Less than private bridge rates, but still tied to prime / floating rate. |
| Experience Required | Yes | Yes |
| Liquidity Required | Yes | Yes |
| Monthly Payment | Interest only | Interest only |
| Balloon Payment | Pay back the loan balance at sale or refinance | Pay back the loan balance at sale or refinance |
| Minimum Interest | No minimum interest | No minimum interest |
| Interest charged on undrawn amounts | No interest on undrawn amounts | No interest on undrawn amounts |
| LTARV requirement | 70-75% LTARV, meaning the loan amount can be no more than 70-75% of the as complete value | 70-75% LTARV, meaning the loan amount can be no more than 70-75% of the as complete value |
Do I need building plans approved to close a New Construction Loan?
Typically, approved building plans are not required to close a new construction loan, but the approvals are required before the construction draws can be disbursed. Not having zoning (e.g. needing to go through a zoning approval process before building plans can be approved) can impact lender appetite and loan-to-cost for purchase.
What is the max LTV for New Construction Loans?
Some banks and private lenders can provide 90% of purchase price and rehab budget for top tier borrowers. We have these programs too, but in most cases the lenders are in for around 80-85% of purchase price and rehab budget for ground up construction loan. Lenders sometimes quote these loans as 80% of purchase price + 100% of construction cost, but when you do the math they usually break down to 80-85% max on purchase price + construction cost, with a 90% max sometimes for top tier borrowers.
There are no 100% of purchase price and cost loans for new construction except for maybe few borrowers with existing deep lender relationships. Almost all New Construction Loans have loan-to-cost parameters.
New Construction Loans are maxed at 70-75% ARLTV (after repair loan to value). For your sake, and your lender’s, research the recently sold new construction similar in size and nearby to the one(s) you are planning to build. The easiest loans to meet on value / appraisal, are ones where a similar new construction home nearby has recently sold at a decent price, and your new construction loan amount is no more than 70-75% of the sale price of that recently sold property.
Are Mid Construction Refi Loans available for New Construction projects?
Nonbank Clearing specializes in mid project refinances. Typically, these scenarios arise when a borrower attempts a project all cash, and wants a loan to complete the project, or they have a construction loan that has either come due or doesn’t have enough rehab budget to complete the project. We are not magicians, but if a mid project refi is doable, then we want to do it.
| Mid Project Refi Good Looks | Mid Project Refi Not So Good Looks |
|---|---|
| ✅ No debt, little debt, or moderate debt on the property | ❌ Project is already overleveraged |
| ✅ Borrower has investment experience outside of this project | ❌ Borrower has no investment experience outside of this project |
| ✅ Borrower has receipts for at least some of the work already completed | ❌ Borrower has no receipts for any of the work completed |
| ✅ Borrower has 700+ FICO score or at least high 600s FICO score | ❌ Borrower has low FICO score |
| ✅ Borrower is current with existing lender | ❌ Borrower is past due on a hard money loan |
| ✅ Borrower has the required plans and permits | ❌ Borrower still does not have the permits needed to finish the work |
| ✅ Borrower has a scope of work and breakdown for the remaining project cost | ❌ Borrower does not know what it is going to cost to complete the project |
Are New Construction Loans available for Townhome and Condo Projects?
Yes, the same banks and private lenders we use for single family home construction also lend on townhome and condo projects.
Are New Construction Loans available for Teardowns?
Yes, and the same loan-to-cost parameters apply for teardowns.
Are New Construction Loans available for Build for Rent, or just Build For Sale?
New construction loans are available for both build for rent and build for sale scenarios. We are set up for both. The build for rent still needs to comp out as a for sale project.
What are good questions to ask a New Construction Lender?
Ask a construction lender about their borrower experience requirements for new construction, how much of their practice is ground up construction lending, and what they do early in the process to evaluate deals and flag potential issues before sending a complete loan file to underwriting. Nonbank Clearing is a new construction loan specialist and we can underwrite the deal internally before even sending to lenders.
Is there minimum interest for New Construction Loans?
There is no minimum interest and no interest charged on undrawn amounts. However, New Construction Loans have up front points and closing costs.
Is a New Construction Private Loan the same as hard money for New Construction?
New Construction Private Loan is essentially hard money for new construction. The only other programs we have with interest rates as high as New Construction Loans are Fix N Flip Loans with the highest leverage, DSCR loans for commercial use property at the highest levarage, and DSCR loans on 1-4 unit residential and multifamily for borrowers with lower FICO scores.
Larger and more established local homebuilders typically have relationships with banks and a lower cost of capital. Banks have more extensive income, asset, and experience requirements but some of them are set up to meet the needs of qualified local builders. Historically, prior to 2008, banks were more involved in homebuilding loans. Since 2008, the banks have been more conservative on ground up bridge loans, and the private lenders have filled in for this niche.
Why do New Construction Loans have more borrower level requirements than Fix N Flip loans?
If a borrower can’t make it on a new construction ground up project, it is more difficult for a lender to work it out on a mid project ground up than it is for a house that is already built and just needs repairs. For this additional risk, lenders have more stringent loan-to-cost requirements and experience requirements for New Construction Loans than they do for Fix N Flip Loans.
Why do New Construction Loans take longer to close and cost more than Fix N Flip loans?
For new construction loans, lenders take more effort to vet the approvals, contractor/developer performing the work, project scope and budget, and value, due to the additional risk of new construction loans compared to fix n flip loans. Due to the additional risk and underwriting challenges, a new construction loan costs a bit more, and takes a bit longer to close, than a Fix N Flip loan. New construction private loan takes 20-30 days to close.
Are New Construction Loans for individuals or LLCs?
For new construction loans, our lenders lend to individuals or LLCs in most states.
Can New Construction Loans be used for modular homes?
Yes, New Construction Loans can be used for modular homes. Please keep in mind the same loan-to-cost after repair loan to value (ARLTV) parameters apply, and you will need building plans approved.
Can first time investors get New Construction Loans?
Private lenders all require investment experience, but not necessarily a previous ground up construction experience. There is no firm minimum experience requirement for 1st time ground up construction loan. Below are a few marginal experience scenarios where we’ve won approvals for our clients:
| Borrower Experience Profile | New Construction Loan Approved |
|---|---|
| 1 ground up completed as a contractor | New construction mid project refi |
| 1 ground up completed and sold as an investor without using any loans | New construction bridge purchase |
| 3 rehabs completed and sold as an investor and 2 rentals held that borrower had rehabbed | New construction bridge purchase |
Some banks will entertain 1st time investors for a ground up construction loan, because those are full doc loans where the lender can review the borrower’s income and assets to make a credit decision. If the bank is local, they might understand the neighborhood and the contractors involved too.
New Construction Loan Process
Step 1- Initial Discussion, Loan Application, and Term Sheet
- Discuss the loan scenario including construction plan, costs, drawings, permits, borrower experience and end value
- Suggest relevant loan programs and provide parameters
- Scope of Work form and recent experience schedule (we can get this over the phone too)
- Loan application and initial info request (we can get this over the phone too)
- Term Sheet and Appraisal Fee
Step 2- Initial Info Required for New Construction Loan
- Loan Application and Appraisal Fee (see previous step)
- Photo of ID and void check
- Copies of building plans and permits
- Contact information for your title agent and insurance agent
- If borrower is an LLC, then LLC Operating Agreement and EIN Letter
- Bank statements with cash to close and required reserves
Step 3- Appraisal, Title, Insurance, and Additional Info from Borrower
- Appraiser visits the property and completes the appraisal report for as is and as complete value
- Lender reviews the appraisal report and internally re-checks value
- Title agent provides title policy, works with lender on revisions and clarifications
- Insurance agent provides insurance policy, works with lender on revisions and clarifications
- Lender usually comes up with other things to ask for from borrower
Step 4- Final Underwriting, Closing, and Funding
- Lender sends complete file to underwriting, and they may find issues or require more things at that point
- Final coordination between title company and lender on loan docs and scheduling
- Closing and Funding
Step 5- Draws
- Borrower sends draw requests directly to lender
- Draws are requested and distributed as a proportion of work already completed on the property based on the Scope of Work form and budget from the loan application
New Construction Loan Requirements
Most of the requirements for New Construction Loans are outlined in the graphic above. If you are getting your stuff together to apply for a New Construction Loan, please be ready to meet the following requirements:
- Loan Application
- Scope of Work Breakdown for Rehab
- Copies of building plans
- Current approvals status and copies of any permits
- Real Estate Owned and Real Estate Investor Experience Form
- LLC documents including Operating Agreement
- Title Policy meeting lender requirements
- Insurance Policy meeting lender requirements
- Purchase contract (if purchase)
- HUD1 from purchase (if purchased recently)
- Summary of work already completed since purchase (if applicable)
- Completed appraisal or desktop appraisal (ordered by lender, paid for by borrower)
- For new construction private loan, no income verification is required.
- For new construction bank loan, full income and asset verification is required.
Nonbank Clearing Advantages
- Familiar with homebuilder scenarios and structures
- Competitive on rates, leverage, service, and handling draws
- Multiphase development and mid-project financing specialist
- Quick approval for new spec outside of existing credit lines
- Accommodate build to sell or build to rent strategy
