Hard money constructions loans during COVID-19 are evolving with each passing week as construction lenders are shifting on the fly into a more cautious mode. This blog post will give a quick run down of what First Capital Trust Deeds is seeing the hard money construction loan market in the middle of April 2020, one month into the forced shutdown of the economy.
Current updates on the real estate market, private money, hard money, and trust deed investing.
While owning property can certainly be lucrative, it comes with a lot of potential downfalls too. What if your apartment complex needs a new roof? Will that office building require more management than you have time for?
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 provides a means of borrowing from someone other than a traditional mortgage lender. It can be a good option when you need a loan fast, but not everyone can get a hard money loan.
One of the most important elements of flipping a house is the team you put together to work on it. An ideal team is made up of knowledgeable, trustworthy individuals that aren’t afraid to get their hands dirty. Your team is likely made up of a design guru, a plumber, an electrician, and a contractor—or five.
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.
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.
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.
Will lenders provide construction completion hard money loans to a homeowner building a new house who runs out of money?