You have a new residential construction project planned out, but now you need to obtain financing. If you started this process by visiting a conventional bank lender, you probably left their office feeling a bit disappointed. Banks have strict lending requirements that prevent many construction projects from obtaining traditional financing. Fortunately, there are other ways to fund your project.
Here’s a look at five lending options for new residential construction projects:
Bridge loans may be an option for your project if you have equity in your property and need short-term financing when you’re in between two properties. For example, a bridge loan can be used if you’re selling your existing home and need financing to complete construction on another home. Since these loans are short-term and carry high interest rates, they can be risky. If your existing home doesn’t sell in the time you expect or something goes awry with construction, you need to have an alternate plan for repaying these loans at the end of the term.
Construction to Permanent Loan
Construction to permanent loans are available through some banks and offer short-term construction financing, followed by a traditional 30-year loan. In order to qualify for this type of financing from a bank, the borrower must meet all of the requirements for a traditional 30-year loan. For investors or developers looking to earn a return on the construction project, this loan option might not fit your needs. This option offers little to no flexibility in lending requirements and financing terms.
Private Construction Loan
Some private lenders, like LYNK Capital, offer loans specifically for new residential construction. We are partial to this lending option since it provides project flexibility and fast funding. Our construction loans can finance up to 50% of the lot value and 100% of construction costs, and fund in 10-15 days. Many private construction loans, including ours, are not available for owner-occupied properties. If you’re building a new home with the intention of occupying it yourself, this loan is not right for you. Investors and developers can benefit most from our private construction loan.
Hard Money Loan
Many private lenders offer hard money loans. They are a great option for borrowers and properties unable to qualify for other forms of financing. These short-term loans - typically five years or less - can finance a substantial portion of your construction project. Most hard money loans will fund up to 70% of the loan-to-value. Just like private construction loans, hard money is not typically used to finance owner-occupied properties. Investors, developers, and flippers can look into this lending option more to see if it’s the right fit for them.
Loan from a Private Investor
If you know an investor with cash available and are able to work with them on your new residential construction project, then great! Private investors can offer the most flexibility for your project if they’re willing to negotiate terms. However, unless you know someone who is an investor or someone who can put you in contact with an investor, financing your project with this option will be difficult. Fortunately, private money lenders often have a network of individual investors looking to fund private loans.
Our Lending Experts are Here to Help
Thinking about a new project? Ready to get an approval? We want to make your life easier with our flexible process and knowledgeable staff. Get started with our online pre-approval and you’ll be one step closer to a fast closing.
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