Flexible Construction Financing for Builders

We have many years of experience obtaining construction financing for builders.

Construction financing for builders is a unique niche of expertise that requires an understanding of our builder clients’ objectives, market, budgets, construction timelines, and goals.  That being said, there are three fundamental areas that almost all construction financing for builders focusses on:

1. Loan to value

This term refers to the amount of financing we are able to provide to our builder clients relative to the value or cost of their project.  The typical calculation that we use is a loan to cost amount.  Within this we are able to typically lend at 80% loan relative to our builder’s cost.  For example if a builder’s cost was $300 000, then as they expended these cost items we would be able to reimburse them up to $240 000, which is 80% of $300 000.   With this cost method, they typical overall loan to completion value for construction financing for builders is between 60% and 65%.

The second method that we are sometimes able to use is a calculation of loan to value relative to percentage complete up to 75% loan to value for homes that are sold.  This method is less common but is often preferred by our builder clients as it affords them a higher lending amount.  For example if a home is worth $400 000 and is 75% complete then we would be able to finance up to $225 000  (($400 000*.75 loan to value) *.75 percentage complete). Compared to the standard 80% loan to cost method, this affords our home builder clients about 10% in addition financing, on a $400 000 home this would give them an additional $40 000 in mortgage funds.

2. Flexibility of funds and funding requirements

This is an area where construction financing for builders can be either very simple or very frustrating for our clients and is also an area that we excel at ensuring it is simple.  Typically for our clients we will send out an appraiser two times a month to complete a progress inspection report of their current homes under construction.  Once we receive this report we work with our funding partners to determine the increased percentage completed on the home relative to the previous inspection.  Once the calculation is complete construction funds are typically advanced to our client within two to four days.

3. Cost of construction financing

The cost of private and flexible construction financing for builders depends upon several factors.  These include: the location that the home is being built, the type and marketability of the home, and the experience, history, and financial strength of the home builder.  Typically the net cost for construction financing is between 9% and 16%, this includes a portion of mortgage rate and lender fees.  For example a funding at net 11% might include a mortgage rate at 8.5% and lender fees of 2.5%.  The lender pricing is negotiable but the lending market is relatively small so we work closely with our builder clients to ensure they receive the best pricing available.

We are experts in construction financing for builders, please always feel free to contact me directly to discuss your unique situation.  Once we have discussed your scenario and goals we will create a unique funding structure for you that ensures you receive the funds you require, when you require them, at a price that works well for you.

Rylan Hahn for construction financing for builders PH 403-802-7201