Subdivision Construction Financing
Financing for construction of single-family residential homes as well as residential
land acquisition and development financingis done by local, regional and national
construction lenders.
Typical Residential Subdivision Construction Financing Terms
Note: These are not terms of any specific lender. They represent terms that we frequently
see in the marketplace and are not to be relied on as a commitment to provide any
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Structure:
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Generally these are lines of credit that are funded as costs are incurred and repaid
as houses or lots are sold.
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Maximum loan to cost:
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80% to 90%
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Maximum loan to value:
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70% to 80% of completed value
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Term:
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Generally 1 to 2 years with extensions as necessary
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Amortization:
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Interest only
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Typical Rates:
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Prime plus 0.5% to 2.0% or LIBOR plus 3.0% to 4.0%
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Developer Experience:
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Developer and contractor must have experience at this type and scale of development.
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Release Clause:
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As lots or houses are sold the developer will pay back 75% to 85% of the proceeds
to the lender and the lender will release this asset from the collateral.
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Recourse:
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Typically these loans are recourse.
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Closing costs:
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Borrowers are responsible for all due diligence and closings costs (e.g. Appraisal,
Phase 1 Environmental, site inspection, title, etc)
- Loans under $3M - costs range from $6,000 to $12,000
- For loans over $3M - costs can be $20,000 or more
Most construction lenders also charge a 1% loan fee.
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Information You Will Need For Your Application
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