Construction Loan Rates, Loan to Value Ratios & Term Lengths
Construction loan rates can be anywhere from 10-15% depending on various factors affecting the risk of the project. The preferred loan to cost (LTC) on new construction loans is in generally 50-65%. The terms available for a construction loan ranges from 6 to 18 months. In some cases, extensions on the term of the loan may be granted as long as regular payments are being made and the loan is current.
New home construction loans may be refinanced with a conventional lender upon completion of construction if the goal of the project is to build a home to reside in. Otherwise, the borrower will most likely be selling the property in order to pay off the initial construction loan.
Fund Control for Construction Loans
Construction loans utilize fund control or construction reserve accounts, which are responsible for disbursing the predetermined funds from the lender to the borrower once the corresponding construction tasks are completed. The line item budget specifies the construction tasks to be completed and the amount of funds that will be disbursed upon completion. Construction loans also contain a Contingency line item within the line item budget, which is 5-10% of the total budget of the construction costs to account for any unforeseen expenses or over budget items.
Another common requirement by the construction lender is Course of Construction insurance. This covers all of the improvements (framing, dry wall, plumbing, etc.) made to the property as the construction progresses.
North Coast Financial is an experienced provider of hard money construction loans in San Diego and throughout Southern California. Contact us for a free consultation and to see how we can help with your project.