FCTD Blog

What is Dutch Interest for a Hard Money Construction Loan?

Some private lenders use a method of interest accrual known as “Dutch interest” for a hard money construction loan which calculates payments based upon the entire loan amount rather than payments on partial advancements in a construction loan.

First Capital Trust Deeds works with a few hard money lenders in California, Oregon, Washington, and Florida that use Dutch interest. Most construction focused loans originated by FCTD, however, feature “New York interest”, where interest accrues on construction reimbursement advances rather than on the entire loan.

Hard Money and Private Money Construction Completion Loans

In the construction industry, every project is time-sensitive and speed can make or break the success of the project. When you’re confident that your efforts will result in excellent profits, you don’t want to wait around for slow financing. Although traditional finance is available for construction completion loans, it isn’t always quick and easy to get an institutional loan. Even when you are eligible, you may find that the application to delivery time is too slow for your construction project. Another option is to choose a hard money or private money loan for your construction completion project.

Hard Money and Private Money Ground-Up Construction Loans

If you’re working in the construction industry, you’re probably already aware that private money lenders have a longstanding history with developers. While banks may sometimes see your efforts as carrying too much risk, new construction loans come with the potential for private lenders. Since the recession, those offering private money construction loans have begun to exercise a little more caution, but they still remain as a viable option.

The Hard Part About Obtaining a Hard Money Construction Loan

A hard money construction completion loan seems pretty easy and straightforward at 65-75% of as-is value of a partially finished home. And typically they are easy to get approved when it comes to the lender’s underwriting. Builders and house flippers, along with hard money lenders, often run into challenges from the title company’s issuance of a 2006 Alta Extended Lender’s Policy with 125% coverage.

Can You Do Construction Completion Hard Money Loans?

Will lenders provide construction completion hard money loans to a homeowner building a new house who runs out of money?