Construction Loan2025-01-17T06:57:50-08:00

LA Construction Loan

Your first step in securing a construction financing should be to talk to City Capital Realty financial advisor. The amount you may borrow will be an important part of your discussions with your builder in deciding what to include in your new home.

How do I get a construction loan?

Your first step in securing a construction financing should be to talk to City Capital Realty financial advisor. The amount you may borrow will be an important part of your discussions with your builder in deciding what to include in your new home. An advisor can also answer your questions about how construction loans are structured.

  1. To get qualified, you will need to provide your basic debt, income and asset information
  2. To apply for a construction loans, you will need to have a signed construction or purchase contract with your builder or developer.The contract will detail certain aspects that will impact your loan, such as:
  3. Contract amount, which includes construction and cost of land, if applicable
  4. Construction start and completion dates
Banks needs to know more information about land acquisition and future development projects.
  1. Where is the property located?
  2. How much was the purchase price?
  3. When was the property acquired?
  4. Copy of closing statement and HUD-1 is required.
  5. What type of project will be built on this location?
  6. What is the size of land?
  7. How much of land is flat, slope or hilly?
  8. What is the result of geological test report?
  9. Is the land project next to commercial building, gas station, body shop, mechanic shop, or possibly close to a contamination site?
  10. Phase I or II report is done on the subject land.
  11. Who is going to built the project?
  12. Contractor resume, license, and property insurance is required.
  13. How much will it cost to build this project?
  14. Borrower will have enough equity in the project to satisfy the needed requirement.
  15. Appraisal report will be ordered by the lender to find out the profitability and feasibility of the project.

Borrower’s financial resources and experience play important role

  1. Does the borrower shows enough income on his personal tax return to continue to support his existing obligation in addition to new commitment during short-term process of this transaction?
  2. Does the borrower have an adequate cash reserves for paying the initial cost of obtaining plan and permits and also pay the monthly mortgage payment along with property tax and other expense associated?
  3. Borrower is familiar with process of obtaining plan and permits and plan check.
  4. Does the borrower have a track record of land acquisition and development in the past?
Lot/Land Loan

First find the good location to build your dream property. Lot loan is the right loan if you are looking to purchase a commercial or residential lot to build. Once you have purchased your land, you will have time to make the basic decision and choose a contractor. Location may be one of the most important factors to consider.

How lenders and Financial Institutions calculate equity in the Construction Project?

What is a finished lot?

A finished lot refers to a portion of land that already has road access and utilities in place. Additionally, it has been approved by the city or county as a separate parcel of land on a parcel map.

What insurance is required for a construction – to permanent loan?

1. Course of Construction

This is an all risk insurance policy covering fine, extended coverage, builder’s risk, replacement cost, vandalism.

2. Workers Compensation Policy

This covers the site supervisor, subcontractors, and others will be working on your property.

3. General Liability Insurance

As an owner/builder, you are required to provide a minimum amount $500,000 for each occurrence.

4. Flood Insurance

You are required to have flood insurance if your property is being built in an area that the federal government has identified as a Special Flood Hazard Area.

Ground Up Construction Loan

From $1,000,000 to $20,000,000

How lenders and Financial Institutions calculate equity in the Construction Project?

Example: 1

If you purchased a land for $2,000,000 and construction cost will cost another $2,000,000 so the total construction project cost would be $4,000,000 you need to put 50% of your money as down payment that will be $2,000,000 and you can borrow the balance of $2,000,000 in order to finish the project. In today’s financial market this is the rule of thumb which most of the lenders are requesting.

Example: 2

If you intend to purchase a land that doesn’t have plan and permit, basically you temporary want to apply for land loan only. Some lenders are willing to extend a loan up to 50% of total price for a short-term period. So on this case you need to come up with $2,000,000 of your money as a down payment.

If you are planning to build a construction project but you don’t have plan and permit available immediately, you need to buy the land with 50% down payment and close your transaction. And after you obtained complete plan and permit, then you need to apply a new construction loan. On these scenarios your initial cost will be a little bit more but you don’t have any choice and this is how it works.

The interest rate for land loan is based on prime rate plus a margin and term will be between two to five years period.

Usually, when you apply for construction loan, you don’t have to make any monthly mortgage payments. In the initial cost breakdown that you are submitting to the lender, the interest reserve, insurance, property tax, closing cost, Escrow, title, appraisal, Phase I report, permit fee, architectural design fee and actual building cost (which includes hard + soft cost) is included.

Most lenders may require a Phase I environmental report or geological report to make sure that the land isn’t contaminated and dirt is strong enough.

Construction Type
  • Condominium Project
  • New Commercial property
  • Apartment project
  • Industrial Building
  • Office
  • Medical

Loan Parameters
Amount: $1,000,000 to 20,000,000
Amount: 60% Loan to Cost
Term: 18 Months
Rate: Prime Rate Plus Margin
DCR: 1.25
Permit fee must be paid in advance.
Land must be free and clear.

Let’s work together

How Does This Work?

Loan Application

First, call and speak with one of our licensed senior loan officers to begin the application process. We will conduct a quick phone interview to get a better understanding of your needs and quickly move to the application process.

Loan Approval

Immediately following your application we begin the approval process. Our staff will work diligently to find the loan programs that best suit your needs and goals. We usually have an answer within 72 hours!

Funding

Once we’ve completed the approval process, you’re ready to fund your new loan. After you’ve completed signing the loan documents they will be returned to our funding department.

We Know How to Fund Construction Loans

Competitive Interest Rate and Fast Financing

 

How many loans and escrows do we need to build our own home?2024-12-15T23:23:57-08:00

You can have as many as three, and as few as one. If you purchase the land at the same time you close a construction loan, and that construction loan is a “single close” construction loan, you can get by with just one set of closing costs, and one escrow. Three sets of closing costs would be incurred if you: 1) purchase the lot first, either paying cash or by getting a lot loan, 2) you obtain an interim construction loan when you have plans drawn and a builder lined up, and 3) you then obtain a “take out” loan to provide the permanent financing.

When can I buy the lot using a construction loan, and when do I have to first get a lot loan?2024-12-15T23:26:20-08:00

If you have found a lot, and you wish to use one of our low rate “single close” construction loans to acquire that lot, you need to have a long enough “close of escrow” written into the purchase contract on the lot so that you can obtain plans and select a builder in that time period. A construction loan can only close with architectural plans, a signed contract, and a cost breakdown with a builder based on those plans. From a practical standpoint, if you enter into a contract to purchase a lot, and you haven’t yet begun the process of developing plans with an architect, you’re probably going to have to obtain a lot loan or pay cash for that lot. The situation where it is easiest to use a “single close” construction loan to purchase the lot is when the lot is owned by the builder, and the builder has architectural plans for that lot that suit you.

Can your programs be used to finance major remodels or even a “teardown”?2024-12-15T23:27:54-08:00

Yes. This “rehab” construction loan can be a refinance on the home in which you live, or an acquisition rehab loan used to acquire a property and provide the funds for rehab/addition.

If we already own our lot, how do we determine how much we can borrow?2024-12-15T23:29:09-08:00

How much you can borrower is based on two sets of criteria. There will be an amount for which you can qualify using full income and asset documentation and a maximum 45% debt ratio. The maximum loan amount will also be limited to 80% (to $1M loan amount) of the lesser of two numbers representing the value of the home to be built. One of those values is based on what the property would be worth in today’s amrket, if finished already as planned. The other number is a cost number based on the current value of the property plus new construction costs. Above $1M loan amount we can do 75% to $1.5M, 70% to $2M, and 60% to $3M.

Should we pay off our lot before we apply for a construction loan?2024-12-15T23:30:21-08:00

There is probably no reason to pay off your lot loan prior to the construction loan funding. If you have a lot loan, the new construction loan will pay off that lot loan just like any refinance would. The lot and the new improvements constitute only one piece of real estate, and the lot loan has to be paid off so the construction lender ends up in first lien position. If you pay the lot loan off prior to applying for a construction loan, you may be handcuffing yourself by putting too much cash into the deal. Construction loans are almost always “no cash” out loans, so it may not be possible to get this cash back on acceptable financing terms until one year after the home is complete. You are often better off having cash on hand during construction to handle upgrades and changes, especially if you are doing a loan without a contingency. In some cases, depending on your loan amount, acceptable loan-to-value percentage, and how much cash or equity you have in the deal, the lot may need to be free and clear to meet these criteria, but there is no overriding guideline that the lot needs to be free and clear in all cases.

What is a contingency, and should I have one?2024-12-15T23:31:39-08:00

A contingency is a line item in your cost breakdown that does not have a specific element of your build associated with it. If, during the course of construction, you decide you want some additional work done, or you decide you want to upgrade your materials (from granite tile to a slab of granite for example), you can used the money in your contingency item to do this. Without a contingency, you would have to pay “out of pocket” for these changes, since the loan amount on a construction loan cannot be increased during construction. A contingency is generally a good idea if there is room enough in your appraisal or total cost such that you are not already at the maximum loan to value percentage allowed at your loan amount. Naturally, you also have to be able to qualify for the higher loan amount necessitated by the inclusion of a contingency. You only pay interest on the amount borrowed, so you are not charged interest on unused contingency funds. By virtue of raising your loan amount, the inclusion of a contingency will slightly increase your points and some of your title and escrow fees.

Can we start construction using our own funds, and get a construction loan later when we need it?2024-12-15T23:32:51-08:00

In the days when there were many different construction lending options, some lenders allowed this. At this point in time, it can severely limit your construction loan options if you do more than push around some dirt, do site improvements like utilities and retaining walls, or do anything more than a slab foundation. Another possible problem with starting the build “out of pocket” is that when you are applying for a construction loan, your reserves have been depleted, and your file is not as strong.

Can the interest charged for the entire construction period be paid by the construction loan?2024-12-15T23:33:43-08:00

Yes. An “interest reserve” account is permitted but not required. Anticipated interest for the construction period becomes part of the loan amount. In this case, the borrowers does not get a monthly bill for interest (single close construction loans are interest only during the construction period). As with a contingency item, “interest reserves” only make sense if there is “room in the deal”, and the borrowers are not already at the maximum allowable “loan-to-value” ratio, or at the maximum loan amount for which they can qualify. “Interest reserve” accounts are particularly useful when the borrowers are already making a house payment on their current residence.

Why Choose City Capital Realty?

Experts in many lenders from Construction Loans

City Capital Realty has been in business for over 20 years. We have funded over $100 million in loans, and have relationships with many of lenders and investors. This gives us the ability to say YES and fund your loan quickly at the lowest rate possible

  • We can close your loan shortly after receiving all required documents!
  • Guaranteed competitive rates!
  • Over 20 years of experience.
  • Evening and weekend appointments.
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