Construction Loan Myths and Misconceptions

Starting construction with our own money won’t be a problem.

This is not a good idea.  Historically, most construction lenders won’t touch a deal that has pre-started.  Possible mechanics liens create title insurance problems.  Best case, and at a minimum, the title company and lender would want construction to stop for the mechanics lien window of 60 days, after filing certain notices.  The title company …

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Construction lenders will lend off of what the house will be worth when completed.

Between 2003 and 2008 this was true for many construction lenders.  Construction lending had moved to where, if a bank was going to be competitive, they needed to ignore how much cash the borrower had in the deal, and just lend of the end value.  Multiple construction lenders were doing 100% of costs as long as …

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My land has to be paid off to get a construction loan.

Your vacant lot does not have to be free and clear.  The current value of the lot is added to construction costs and prepaid soft costs.  Total costs are then compared to what the house would be worth if completed already as planned, as demonstrated by an appraisal.  Construction lending is back to the more …

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