Everything You Need to Know About New Construction Loans
As an experienced residential real estate builder, you might tackle a variety of construction projects, from single family homes to multi-family rental units. But translating construction project blueprints into a dream residential property requires vision, planning, and — funding.
Fortunately, you have a variety of financing options to (literally) build your dream, including new construction loans. But what is a new construction loan? What are the benefits of a new construction loan? And how can you get this specialized construction loan?
Read on for a quick primer crafted just for builders.
What is a new construction loan?
To help you get your project up and running quickly, you can choose to get a new construction loan to cover project costs before you obtain long-term financing. Designed to offer a simplified financing solution, a new construction loan provides funding for builders looking to construct new residential properties. Although it appears somewhat similar to a traditional mortgage, a new construction loan differs in its approval process (typically quicker), terms (shorter duration), and disbursements (several milestone payouts rather than one lump sum).
This short-term loan typically only covers a 12-month period rather than stretching for decades like a traditional mortgage. However, certain loan programs, such as Haus Lending’s Ground-Up New Construction Loan, extend that out to 18 months to make loan repayment more convenient for borrowers. Depending on the project, the construction loan could cover the land, permits, fees, materials, contractor labor, closing costs, reserves, and other associated project costs.
Due to the short timetable of a new construction project, you must provide the lender with all the project details during the approval process, such as the project timeline, architectural plans, and budget. Some lenders, like Haus Lending, do not require the project to be permitted by the local municipality or zoning board as part of the loan application process. Once you get a “yes,” the lender will create what’s called a draw schedule, tying incremental borrower payouts to key construction milestones (such as when the foundation is poured, the framing begins, etc.). An inspector or appraiser will monitor the work progress throughout the build, inspecting and approving the milestone achievements that trigger the payments.
What are the benefits of a new construction loan?
Check out these benefits of new construction loans:
Simplified eligibility. Compared to traditional mortgages obtained through banks and Fannie Mae, new construction loans provide a more streamlined approval process, making it easier to meet eligibility requirements. Plus, with more flexible credit standards, no collateral required, and more supportive, concierge-like assistance, non-bank lenders like Haus Lending offer a hassle-free financing alternative.
Faster turnaround. As a builder, you don’t want your project held up because you can’t secure the necessary funding to get your project off the ground. A new construction loan helps you quickly get a property ready for sale compared to the cumbersome process of obtaining bank loans. When you go through a bank for a traditional loan, the approval process can take up to several months, which can really stall a project kickoff. But when you apply for a new construction loan, you’ll typically discover a shorter approval process—sometimes as little as 14 days.
Potentially cheaper loans for investment properties. While traditional personal loans and mortgages offer a lower interest rate, loan payments stretch out for 30 years, accruing thousands of dollars of interest along the way. But with a new construction loan, you’ll pay off your entire loan within 12-18 months—often paying only interest on money drawn to date—until you complete the project. Do the math and you’ll discover that new construction loans can save you a bundle thanks to their shorter term.
How can you get a new construction loan?
Typically, getting a new construction loan starts with a phone call or online application.
At Haus Lending, we offer a Ground Up New Construction Loan, a simple, no-nonsense loan program that provides fast funding for a fast-paced market. If you plan to build a one- to four-unit residential rental property, our rates start at just 7.95%. With financing spanning all budgets, we’ve got you covered, with new construction loans ranging from $50,000 to $2,000,000.
As a leading nationwide platform that has funded nearly $3 billion in loans, Haus Lending can help you build your dream rental property. To start the application process for a loan, or to speak with a loan specialist, fill out the application form or call 1-877-464-4287.
*Rates advertised are the lowest offered. Actual rates and offers may vary based on approval criteria, including but not limited to borrower FICO score, previous experience, period of ownership, etc.
**Leverage advertised is the highest offered. Actual leverage and offers may vary based on approval criteria, including but not limited to borrower FICO score, previous experience, period of ownership, etc.
***At this time, we are unable to lend in Minnesota, North Dakota, South Dakota, Utah, and Vermont.
Haus Lending is an affiliate of Loan Funder LLC, which is licensed as a California Finance Lender under Department of Business Oversight License 60DBO-69051. Arizona Commercial Mortgage Banker License 1002735. Florida Mortgage Lender Servicer License MLD1778. Nevada Mortgage Company (License #5100) (Loan Funder LLC) North Carolina Loan Broker Registration Filing 315. Oregon Mortgage Lending License ML-5855. NMLS Company ID 1804080. West Virginia State Tax Department, Account #2410-0931 (Loan Servicer LLC).
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