Construction Financing

Construction Financing

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Assembling the capital needed to develop new commercial and industrial properties is increasingly challenging and expensive. C-PACE (Commercial Property Assessed Clean Energy) new construction financing can help provide capital to new construction, repositioning, and gut renovation projects. Developers and owners can use this innovative financing as part of their capital stack when designing for more efficient, higher performing buildings.

We will simultaneously commit a construction loan and a long-term permanent mortgage, which can be committed up to 24 months in advance. This includes lending for the acquisition/refinancing and rehabilitation of multifamily-occupied properties, gut renovation of vacant buildings into multifamily properties, and new construction of multifamily properties.

Finding attractive financing for commercial real estate is no walk in the park, as borrowers realized all too well in 2022. Particularly for those seeking construction loans, it was more like a hike up a mountain.

Construction lending has been particularly challenging. With many of the larger banks (the traditional lenders on construction projects) pulling back, even sponsors with very strong banking relationships found themselves with limited options.

In addition to accessing third-party capital, Walker & Dunlop is the #1 lender in HUD new construction nationwide. In its mission to meet the need for quality affordable rental homes, the U.S. Department of Housing and Urban Development provides stable financing during countercyclical times. This includes the HUD 221(d)(4) multifamily construction loan.

Single-closing transactions may be used for both the construction loan and the permanent financing if the borrower wants to close on both the construction loan and the permanent financing at the same time. When a single-closing transaction is used, the lender will be responsible for managing the disbursement of the loan proceeds to the builder, contractor, or other authorized suppliers.

Loans that combine construction and permanent financing into a single transaction cannot be purchased by Fannie Mae until the construction is completed and the terms of the construction loan have converted to the permanent financing.

For all single-closing construction-to-permanent transactions, the construction loan must be structured as a temporary loan exempt from the ability to repay requirements under Regulation Z. The construction loan period for single-closing construction-to-permanent transactions may have no single period of more than 12 months and the total period may not exceed 18 months. Lenders may, when needed to complete the construction, provide an extension to the original period to total no more than 18 months but the documents may not indicate an initial construction period or subsequent extension of more than 12 months. After conversion to permanent financing, the loan must have a loan term not exceeding 30 years (disregarding the construction period).

Exceptions to the 12-month and 18-month periods will not be granted. The above construction period requirements do not apply to two-closing construction-to-permanent transactions. If the construction loan period exceeds the requirements above, the lender must process the loan as a two-closing construction-to-permanent transaction in order for the loan to be eligible for sale to Fannie Mae (see B5-3.1-03, Conversion of Construction-to-Permanent Financing: Two-Closing Transactions).

When a purchase transaction is used, the borrower is not the owner of the lot at the time of the first advance of interim construction financing, and the borrower is using the proceeds from the interim construction financing to purchase the lot and finance the construction of the property.

Single-closing construction-to-permanent mortgages are subject to the purchase and limited cash-out refinance maximum LTV, CLTV, and HCLTV ratios (based on property type) provided in the Eligibility Matrix , as applicable.

The lender must underwrite a single-closing construction-to-permanent loan based on the terms of the permanent financing. If the permanent financing terms are modified, and no longer reflect the terms on which the underwriting was based, the loan must be re-underwritten, subject to certain re-underwriting tolerances. The loan data at delivery must match the data in the final submission of the loan casefile to DU.

All credit documents must be no more than four months old on the note date (that is, the closing date of the construction loan). Additionally, income, employment, and credit report documents must be no more than four months old at the time of conversion to permanent financing. As an exception, these documents may be more than four months but not exceeding 12 months old at the time of the conversion to permanent financing if all of the following conditions were met at the time of the original closing of the construction loan:

If updated credit documents are required to be obtained after the original closing of the construction loan, any validation of income, employment, or assets is no longer applicable. Updated validation reports must be obtained and the loan casefile resubmitted to DU and the loan must convert to permanent financing by the Close By Date stated in the DU validation message in order for validation and the associated waiver of enforcement relief of representations and warranties to apply.

For all single-closing transactions, the effective date of the appraisal must be no more than four months prior to the note date (that is, the closing date of the construction loan). Additionally, at the time of completion of construction, an Appraisal Update and/or Completion Report (Form 1004D) must be completed in its entirety including the appraisal update and certification of completion. If the appraiser indicates on the Form 1004D that the property value has declined, then the lender must obtain a new appraisal for the property and requalify the borrower using the updated LTV ratio per the Requalification Requirements, below.

Option 2: A separate modification agreement must be used to convert the construction loan into permanent financing. This agreement must be executed and recorded in the applicable jurisdiction before the permanent loan is sold to Fannie Mae.

The lender must include the applicable conversion document in its loan submission package. When amended documents are recorded in connection with a construction loan rider, the lender also must include a copy of the original documentation that the borrower signed.

Offering financing to your clients allows you to provide a better overall service. With financing options, homeowners will have much more flexibility to fund their projects while managing their budget. Giving your clients the option to finance will also help you close more deals in cases where homeowners may not have the ability to pay up front with cash.

The Customer (Buyer) purchases the land and must own it free and clear. The Customer then approaches UIF to obtain construction financing. The Financial Consultant will obtain the necessary information from the Customer and provide a Pre-Qualification Letter which also appoints the Customer as an agent of UIF.

A home construction loan for an individual finances the costs of building a personal residential property. It can be used to pay for the land, labor, materials and services, and there are several types that you can choose from.

A construction-only loan covers just the cost of building the home for the time it takes to build. Once the home is constructed, the whole loan amount is typically due. Borrowers could cover the amount by paying cash or taking out a separate mortgage.

A renovation loan is a type of construction loan that finances the costs of large improvements to an existing home, such as adding several rooms, a garage or an in-ground swimming pool. A rehabilitation loan also finances major changes to a home, but these changes are focused on making a dilapidated home fit to live in.

This deters unscrupulous contractors from demanding large sums of money without specifically designating them for precise expenses related to your project. Make sure that there are enough funds available for the builder to break ground, and that you and your contractor have a clear understanding of how all construction funds will be paid.

Make sure your contractor or builder understands how they will be paid during the construction phase to prevent any delays in the process. If a subcontractor flat out refuses to do any work until they receive an upfront payment, come up with the cash to cover the front money the contractor asks for, or find a different subcontractor.

In addition to builder financing, there are some unique tools that apply to new homes (but not to resale homes) that include bridge loans and new-construction financing. These can be used to fund the purchase and construction of a new home before the sale of your current home.

A construction loan is useful if you are building a home yourself as a general contractor or working with a custom builder; these are often paired with lot financing loans. Most new home construction loans provide short-term funds designed to get you through the building stage of your project (six to 12 months) followed by a conversion into a permanent long-term loan of 30 or 15 years; this is called a single-closing loan.

A two-closing loan, on the other hand, refers to buyers taking out a construction financing loan, closing it when the house is built, and then applying for a new loan for their permanent financing. While this is more expensive due to the requirement of two loan approvals and two closing costs, this option is helpful if construction costs go beyond budget. 59ce067264

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