Building a Strong Foundation: A Guide to Construction Loans

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If you’re a real estate investor looking to fund the ground-up construction of a new investment property or doing a renovation to fix-and-flip or fix-and-hold, a construction loan might be for you.


In this comprehensive blog post, we will explore the ins and outs of construction loans, examining how they work, their benefits, tips for obtaining a construction loan, and more. Ready? Let’s go! 


What is a Construction Loan?

A construction loan is a temporary (short-term) financing option designed specifically to cover the expenses involved in constructing a home – whether that be ground-up construction or rehab. 


The procedure for acquiring a construction loan is streamlined and efficient. These loans are crafted to prioritize convenience, expediency, and adaptability, eliminating the need for tax return documentation and enabling a swift closing process – sometimes in as short as two weeks.


At Defy Mortgage, we offer construction loans tailored to meet your needs. Fix and flip-for-sale or fix-and-hold. Leverage up to 85% LTC and close within 2 weeks. No tax returns are necessary with a proven track record. Our skilled team is well-versed and will provide personalized solutions to each customer’s needs. 


The Process

The loan approval is contingent upon factors such as loan-to-cost, experience, construction budget, loan-to-as-completed value, credit score, and liquidity. Once approval is granted, you will have access to funds corresponding to each phase of the construction project. 


During the draw process, an inspector will periodically assess the progress of the build to guarantee adherence to regulations, thus enabling the borrower to sustain a consistent cash flow of funds to continue the build.


Once the construction of the home reaches completion, a certificate of occupancy will be issued. If one then chooses to keep the property for investment purposes, Defy can help in obtaining long-term financing.


Who Benefits from a Construction Loan 

If you’re a real estate investor looking to fund the ground-up construction of a new investment property or doing a reno to fix-and-flip or fix-and-hold, a construction loan is for you.


Borrowers have the opportunity to utilize a construction loan to finance the complete costs (hard and soft costs) associated with constructing a residential property, encompassing the costs of acquisition, labor, materials, permits, etc.


Tips for Obtaining a Construction Loan 

  • Have a construction budget: A must – both to obtain a loan, but also to plan properly for ROI.  
  • Have construction plans and timing for permits (if necessary): Again, a must relative to obtaining a loan and building the home you want. 
  • Understand the as-completed value: This is the post-construction or post-rehabilitation value assigned to the property and its associated improvements by a state-certified appraiser. The appraisal takes into consideration the estimated costs, plans, and specifications of the intended improvements before any construction or rehabilitation work commences.
  • Sure up liquidity: Have the capacity to make a down payment and show reserves. Similar to a mortgage, a construction loan necessitates a down payment. At Defy, we provide up to 85% loan-to-cost (LTC) and loan amounts of up to $10M.
  • Know your long-term options: If your intention is to sell the property or alternatively, if you plan to retain the property as a long-term investment, thereby requiring a take-out loan, it’s important to examine your available options to determine the most suitable course of action for your specific circumstances. This will enable you to make informed decisions that align with your financial objectives and optimize the outcome of your investment. As always, we can help you figure out what option might be best for you.


Defy’s Construction Loan Highlights

  • Group-up construction, fix-and-flip, or fix-and-hold
  • Investment properties (1-4 units)
  • No tax returns required
  • Fixed rates- interest only during construction
  • Loan to cost (LTC) up to 85%
  • Loan to as completed value (ARV) up to 70%
  • Maximum loan amount $10M
  • Can close in as fast as two weeks


At Defy, we offer a variety of home loans, both traditional and non-traditional, and flexible loan options. If you’re interested, visit our product page, to learn more about our loan options and how we can assist you.

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