Construction Loans

Construction loans are available for apartment-multifamily, owner occupied businesses, commercial investment i.e.: office, retail industrial. We provide take out financing in conjunction with the new construction. Construction loans can include rehab and remodeling of the property with a bridge loan component.

If you already own the property on which the project will be constructed, you may be able to use the property as equity towards the loan to cost equity requirements.

Additionally, we offer construction loans for 1-4 family homes for pre-sold, spec, models and development of the offsite improvements.

Borrowing costs for construction projects

The creditworthiness of the borrower, the loan amount, and the loan duration all have a part in deciding the interest rate paid on a building construction loan. It is common for construction loan interest rates to be variable, meaning that they change over time in response to a benchmark index such as the prime rate. The income producing property component is critical to the underwriting of the proposed loan and project.

Generally, the interest rate is variable priced with a margin over the WSJ prime rate and is adjusted monthly or as rates change. An interest rate reserve is established for the borrower within the construction loan budget.

Requirements for obtaining a loan for construction

Before you can begin your construction project and receive the cash you want, you must first obtain loan approval. Unlike mortgages and other sorts of loans, this approach is frequently stricter since the loan will not be backed by—or collateralized by—real property, as is the case with mortgages. Traditional borrower criteria, as well as architectural drawings, a construction timetable, and a projected budget, will all need to be satisfied.

If you want a construction loan, you'll need to have the following:

• Excellent to very good credit
• Tax returns
• Financial statements
• Construction contract, plans, specs, cost breakdown and contractor references.
• Title report
• Appraisal
• Environmental report
• Proposed leases
• Survey

In general a FICO score of 680 or better is required. However in some cases a lower score can be considered. FICO scores take in a number of different borrower attributes which may not be germane to the Lender’s requirements and overall credit risk assessment.

• Having a debt coverage ratio.

The debt coverage ratio measures how much projected net income there will be derived from the project to pay the proposed monthly payments of the permanent loan component. The lender will underwrite the current permanent loan rates to project the DCR so a permanent loan commitment will conform to underwriting requirements and the construction loan paid off.

• At least a 25% down payment is required.

What applying for a construction loan, borrowers are often asked to put down at least 25% of the total project cost. This may include the cost of the land or its current value depending on the length of time the property is owned by the borrower and what other improvements have already been made to the site. Other criteria may be used to reduce the amount of equity required. A CTL loan can allow for a lesser equity position in the property.

• Approval from the general contractor or the builder.

The lender requires a licensed contractor in all cases. They will underwrite your architect and builder experience, other projects, licensing, bonding, insurance and the like before you can proceed with financing the project. A builder's insurance certificate, résumé, and evidence of financial stability may be required. Please include a list of all parties engaged in the project, including the architect, general contractor, and any others.

Make an informed decision about your construction loan provider.

When looking for a construction loan lender, the primary consideration include; lender cost and ease of working with lender during the construction period. Criteria to consider include:

• Can you tell me more about the building financing you provide?
• What are the current rates of interest? Are they predetermined or ad hoc?
• Do you impose any additional charges, such as closing costs?
• I have equity in my land. Can I utilize it as a down payment?
• Paying construction drawings is either based on a predetermined timeline or on a percentage of the project's completion.
• In order to cover the cost of supplies, May the contractor ask for a first draw?

Do you need construction funding to complete your project? It is advisable to select a lender that specializes in construction financing and is not new to the process since construction loans are more complicated than a conventional mortgage. Thus, take advantage of a construction loan from Madera to complete the project.

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