"Yeah, Thanks for everything Ben, I really appreciate your help with this process. This is the first time buying a house in a foreign country, it was a "big deal" for me and I appreciate you answering my phone calls every time. I would definitely recommend you for all my friends that want to buy a house!"
J. Peixoto
Construction Loans
Mortgage Capital and Investment has a variety of resources to provide construction loans for almost all scenarios. This is an area where we excel. Our knowledge of the building process and our deeper understanding of how loans need to be structured for both the borrower and the builder give us a clear advantage over other brokers and lenders. Our experience with closing loans ranging from $300,000 to over $5 million will let you know that you can feel comfortable in the hands of our loan consultants.
There are a two different ways to evaluate construction loans. These two methods are “Loan to Cost” and “Loan to Value”. The method used will have a drastic impact on the amount of money required from the borrower to close the loan. The “Loan to Value” method typically allows the lowest down payment and sometimes no money into the transaction at all. That is the best case scenario. The “Loan to Cost” method requires equity in the lot or down payment which also includes items paid in connection with the development (Plans, permits, engineering, etc.) Here are the calculations for each method:
Loan to cost: (lot value + cost to build) / Total cost – lot equity and prepaid items=LTC
In an 80% Loan to Cost scenario there would need to be 20% in lot equity, prepaid items, or in the form of down payment at closing.
Loan to value: (cost to build + existing liens) / appraised value=LTV
In an 80% Loan to Value scenario there will need to be 20% equity in the finished product or the difference would need to be brought in to closing in the form of down payment.
The loan to value scenario typically requires less cash out of pocket and in some cases none at all. The land has to be owned free and clear or have substantial equity in order for the loan to cost scenario to work with less money out of pocket.
Here are a few of our more popular construction loan programs:
1. One Time Close Construction loan- combination of construction and permanent financing in one loan. This gives the homeowner the ability to lock in the rate and save money by having one set of closing costs. This loan typically works best when the land is owned or the owner has a significant amount of money into the project because most of the lenders prefer to use the “Loan to Cost” method. In some circumstances, some will use the “Loan to Value” method with strong borrowers. The one time close has very limited program options.
2. Two Time Close Construction loan- this is a combination of construction and permanent financing as 2 loans and 2 separate closings. Both loans are approved at the same time but the borrower must maintain the approval on the permanent financing (referred to as the take out loan) during the construction period. This method always utilizes the Loan to Value calculation which allows the borrower to have less down payment if any. This also gives the borrower more options for the permanent financing.
3. Owner builder construction loan- This program allows the homeowner to build their home without the use of a general contractor. This can be a great way to save a lot of money but the homeowner must prove that they have the expertise to build a home.
4. Spec Home Construction loan- this loan is for the builder or investor that wants to build a house with the intention to sell it. This program accepts non-recourse borrowers which allows the builder to borrow using their corporation. The loan to value is much lower which means that there will have to be more cash or equity in the project.
5. No payments during construction loan- actually this can be done on every construction loan if there is enough equity in the project. The lender can build in an interest reserve into your cost breakdown and pull the monthly payments out of the line item until it is exhausted.
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