Construction is a costly business with extremely high investments and razor-thin profit margins.
According to an article from Sapling, a financial-information website, the average profit margin for building a single-family home is 3.2%. Industrial buildings, which generally require an even larger investment, bring a profit of roughly 3.8%. No matter what sector you’re in, this is an industry that requires meticulous oversight and near-fanatic cost management.
To make matters more difficult, the financial investments required for launching a project can be staggering. In many cases, you’re looking at millions of dollars just to get the project moving.
With such high financial demands and little margin for error, the need for affordable construction loans is always present. Fortunately, experts like the team at San Diego Purchase Loans can help you get affordable financing for virtually any construction project.
Whether you are a commercial developer or simply want to build your dream house, having the right information on construction loans is crucial.
Understanding Construction Loans
Generally speaking, construction loans are divided into two broad categories…
If you are in the residential construction industry, you will eventually need affordable financing to make many different purchases. With loans for owner-occupied single-family residential spaces, you can get the affordable terms you need to launch construction and complete your project. These loans can be used for purchasing land, demolition, remodeling, or completely new construction.
Even if you are simply looking to build your own home, you may be able to use this type of construction loan to make it happen.
Commercial construction can, in many cases, be more expensive than residential construction. While it’s certainly possible to find more expensive homes, the very nature of commercial construction often drives the price higher. In many cases, the simple purchase of property that is zoned for commercial use can be exhausting. Once again, this calls for affordable financing that helps developers and construction professionals meet their specific financial goals.
Other Types of Construction Loans
Construction loans can also take a few different forms, which can fall into the residential or commercial categories.
Jumbo Construction Loans
While jumbo loans generally apply to residential property that has already been built, it is possible to get a jumbo loan for your construction needs. A jumbo loan is essentially any loan that goes above and beyond the limits set by the Federal Housing Administration. If you need $1 million to complete construction of a single-family home, you’ll likely need to turn to jumbo loans, which have higher requirements for down payments, credit scores, debt-to-income ratios, and more.
It’s also possible to complete your renovation with a construction loan. For example, if you purchased a commercial property that will be turned into a manufacturing facility, you’ll likely need to invest hundreds of thousands of dollars (if not millions) to convert the property into a facility that meets your needs. Unless you have this cash lying around, you’ll probably need a construction loan. Renovation loans can also be used to renovate residential property, such as finishing basements, adding new wings to the home, or remodeling the kitchen.
Construction has to start somewhere. The simple purchase of land can be a significant barrier to construction projects, but it is possible to get construction loans for the purchase of land. Construction loans for land can be used for residential, industrial, and agricultural property, as well as many other forms of land. In many cases, land loans are used to buy lots that will be developed and sold in individual land parcels to individuals and families.
Bringing Excellent Terms for Construction Loans
At San Diego Purchase Loans, we are dedicated to bringing the best terms to construction loans, giving you the financial flexibility needed to complete your project with outstanding profit margins. Typically, we use the Wall Street Journal Prime rate plus 2% and a 1% loan fee for up to 18 months.
For owner-occupied construction loans, we can lend up to 75% of the project cost, and our process allows us to underwrite to the conforming guidelines. For commercial projects, we can lend 65% to 70% of the project costs. We review each application in a case-by-case basis, and can lend throughout all of California, making us an ideal choice for many different construction needs.
These loans are a one-time close with all-in-one construction to permanent loans. It usually includes a 30-year term with a fixed rate for an initial period, which allows you to lock in a rate before construction begins.
It can also be a finished-value or “as-completed” loan, and pre-start construction loans are available.
Most importantly, we offer underwriting flexibility and use a common-sense approach to loan approval. This allows us to adapt construction loans to fit your needs, increasing the chances of approval for many construction-focused borrowers across the state of California.
Construction Loan FAQs
- What are the terms on construction loans for land?
At this time, we can lend with 50% down on the purchase of a lot that will be used for an owner-occupied single-family home. This loan comes with a 12-month term.
- What is the maximum debt-to-income ratio?
Currently, the max allowable debt-to-income (DTI) ratio is 43%. If your DTI is above 43%, we’d still encourage you to contact our team, as we may be able to help you get affordable financing.
- What is the maximum loan amount for construction loans on residential construction?
We currently offer a maximum amount of $2.5 million for residential construction. This amount can be used for many different purposes, allowing you to complete the project while remaining within reasonable financial terms.
Building Your Future with a Construction Loan
If you are interested in construction loans, the helpful staff at San Diego Purchase Loans is ready to help. We can help you understand the terms and benefits of various loan options, allowing you to make an informed, confident decision for your financial future.
When it comes to construction loans, you can’t afford to take chances, so contact our team today!
“This is the second time that I have worked with Chad (home purchase & refinance). He has become my subject matter expert and someone I depend on for all finance needs related to our home and real estate investments. My favorite things about Chad are his depth of knowledge, responsiveness, honesty and the great service he provides. I have referred countless friends and family of mine to work with him for no other reason than I know that he will treat them well and equip them for the best possible outcome. Chad will add tremendous value to any real estate transaction that you have and I am grateful to have him as a resource.”
I highly recommend Chad Baker. He does a phenomenal job and won’t trauma you or your clients. He has a whole team that works on the loans. And all the team members are great. He has a person that can translate for your clients that are Chinese. He is as good of a loan officer as you are an agent, and that is what you want when referring clients to a lender.
“Chad, it was a pleasure working with you. Your loan was smooth, speedy, and we were kept well informed. I will make sure to prioritize offers where you are the loan officer as I know they run smoothly.”