Re: commercial - Posted by Ed Garcia
Posted by Ed Garcia on August 27, 2003 at 11:05:25:
I received your e-mail and know that credit should not be a problem.
From the way you have described the deal in your e-mail, you?re doing a major ad-on and so the deal should be treated as a construction loan.
The bank will be skeptical of you as a contractor doing the work if you?re not licensed and bonded. If you want to do the work yourself and are not licensed and bonded then you could get another contractor who is a friend to contract to you and work with him.
The appraiser will appraise the house in it?s as is condition and after you show them the approved blueprints of the work being done, appraise it with the ad-on value. The bank will administer the loan paying you if you?re licensed on a voucher system as the work is being done. Once again, if you?re not licensed then the bank will pay the contractor of whom you?ve contracted with to do the deal.
Here is some general information I have given in the past regarding Construction loans.
(1) LAND: Either free and clear, or 50% paid down for a land draw.
(Note) If you wanted, you could buy a lot with NO money down, have the seller subordinate their loan to a construction loan. I know that you already have a property picked out; but I just wanted to mention that for the benefit of others who might be reading my post.
(2) PLANS: These plans have to be approved by the city your building in.
(3) PERMITS: As you know, sometimes the City can require you to build either conforming structures or off sites, that the City wants. They will also have building standard for your area.
(4) COST: The Bank will require a COST BREAKDOWN of all of your expenses. They will want to see a cash flow chart to pay you on a VOUCHER system. As each phase is down and signed off by city inspectors, the contractor will be paid for that phase. (Note) interesting enough, the bank will take your cost break down and analyze it with their computers. If the cost is more, that will concern them, and they will cut it back. If it?s less, that will also concern them because they will think you short changed yourself in building this project. So In essence, the bank can be instrumental in verifying your cost. However, don?t ever count on anyone but yourself. Do your own, do diligence. (Note) the bank will require at least 10% liquidity on you the borrower.
(5) CONTRACTOR: If you are a Contractor, the bank will want to see your resume and you contractors license. If you are not a Contractor, then the bank will want to have a resume on your contractor as well as a copy of his license, and financial statement.
There are other considerations, but this is enough to get you thinking in the right direction. If everything is done right, you should be in the deal about 70% to 75% LTV on a NEW property. In fact I have seen better depending on area, and size of the deal.
Good luck Jim, I hope this helps.