New construction projects can be exciting and lucrative opportunities for real estate investors. However, securing the necessary funding for these projects can be a challenge. That's where new construction hard money loans come in.
New construction hard money loans are short-term loans that are specifically designed to fund non-owner occupied new construction projects. These loans are typically secured by the property being built and are based on the estimated value of the completed project.
If you're a real estate investor looking to finance a new construction project, here's what you need to know about new construction hard money loans.
What is a New Construction Hard Money Loan?
A new construction hard money loan is a type of loan that is used to finance the construction of a new property. Unlike traditional loans that are based on the borrower's creditworthiness, hard money loans are based on the value of the collateral, which is the property being built.
New construction hard money loans are typically short-term loans that are intended to be repaid within 12 to 24 months. These loans are designed to help investors fund the construction phase of a project, and are often used as bridge loans until the property is sold, or a long-term financing solution can be secured.
Why Use a New Construction Hard Money Loan?
There are several reasons why real estate investors may choose to use a new construction hard money loan to finance their projects. One of the biggest advantages of hard money loans is their flexibility.
Unlike traditional loans that have strict underwriting criteria, hard money lenders are typically more focused on the value of the collateral than the borrower's creditworthiness. This means that investors with less-than-perfect credit can still qualify for a new construction hard money loan.
Another advantage of hard money loans is their speed. Because hard money lenders are primarily concerned with the value of the collateral, they are able to underwrite and fund loans much more quickly than traditional lenders. Where a traditional lender might take 45 days or more to fund a new construction loan, a hard money lender could close in under two weeks.
Finally, new construction hard money loans can be a good option for investors who are looking to flip a property quickly. These loans can provide the funding needed to complete the construction phase of a project, and then be repaid quickly once the property is sold.
How to Qualify for a New Construction Hard Money Loan
While the underwriting criteria for new construction hard money loans are less strict than traditional loans, borrowers still need to meet certain requirements to qualify. Here are some of the most important factors that hard money lenders consider when underwriting new construction loans:
- Equity: Hard money lenders typically require borrowers to have some skin in the game. This means that borrowers should have some equity in the project, either through cash or other assets.
- Collateral: The value of the collateral is a key factor in determining the loan amount. Hard money lenders will typically only lend up to a certain percentage of the value of the completed project.
- Experience: While hard money lenders are more flexible than traditional lenders, they still want to see that borrowers have some experience in real estate investing.
- Exit Strategy: Hard money lenders want to know how borrowers plan to repay the loan. A solid exit strategy, such as selling the property or refinancing with a long-term loan, is critical.
New construction hard money loans can be a valuable financing tool for real estate investors looking to fund new construction projects. These loans are based on the value of the collateral, are flexible and can be funded quickly. If you're a real estate investor looking to finance a new construction project, a new construction hard money loan may be the right choice for you.