Construction Lenders and Interest Rates for New Construction Loans
Welcome to The Real Property Show where we talk about building, buying, and selling residential real estate. I’m Brian Freeman and welcome to the show.
I hope you’re doing really well today. I want to discuss construction lenders, and I’m going to talk about the ones that we like to work with and the ones that we don’t. I’ll give you some names of banks so you can reach out to them if you’re in the process and find out what they can do for you and how they can help you.
Difficult Residential Construction Lenders
I want to start with the banks with whom it is difficult to work. US Bank is one of those lenders and although they can get the job done for you, they typically have higher fees to pay. They also require a fund control, which often goes through Dixieline. The tough thing with them is the added paperwork for draw requests. A builder processes probably five to 10 hours of paperwork every time a draw is needed. This adds a lot of administrative work to the process, resulting in having to charge more money, like a surcharge, onto our typical building fees in order to cover the administrative costs when we work with US Bank.
Land purchase loans typically cost more money and the interest rate is a little bit higher too. US Bank has some good people over there, but their fees are a little higher and there’s a lot more paperwork to process when working with them. If you can find another bank for construction lending, it’s easier. So that’s US Bank, one of the ones that we typically try to steer clear of if possible.
Top Residential Construction Lenders
OneTrust Bank - Smooth Construction Loan Lenders
We’ve had some great success working with OneTrust bank. They have an easy process to navigate and they’re easy to work with. We’ve worked with them a number of times and the process for draw requests and getting progress payments as you complete project milestones is very easy. They have great rates as well. We’re currently seeing some rates down in the low threes, even three percent, somewhere in that ballpark right now for construction money. That’s a one time close on construction money. You can fund the purchase of the land and/or you can fund the actual house. You will not need to refinance, so it doesn’t require an initial construction loan followed by a refinance into a permanent loan. OneTrust’s loan to build is the permanent loan, so you get a good rate on that construction money for the build phase. They’re very easy to work with and their process is very smooth. So OneTrust is a great bank to work with.
Umpqua Bank - Specialty Construction Lenders
Umpqua Bank is another bank that we’ve had success. They have been very helpful with off the grid properties. This is one of the only banks that will lend on these types of properties. So if you have a property that doesn’t have electricity to it and you need some funding, Umpqua Bank is a good bank to work with. We’ve had good success with them and they have streamlined their draw process so that it is fairly easy to work through. They’re a good resource and have competitive rates as well.
Kinecta Bank - Creative Construction Loan Lenders
One bank that we have found to offer other options, if you need particular income qualification perimeters to be a little bit more aggressive, is Kinecta Bank. In some instances, owners living with a current mortgage and a high debt-to-income have difficulty qualifying for construction loans. Oftentimes these owners would need to sell their current home before they are approved for a construction loan, or rent out the current home after the new home was built. What Kinecta can do for you is allow you to count the fair market rent income today for your current home even though you don’t have signed a lease agreement.
Kinecta’s underwriting guidelines allow you to qualify to make the purchase, or to get the loan funded for the construction on your new home without having to sell your current house or put an actual lease agreement in place. They allow you to claim that you will rent your current home and that it will be fair market value, and that helps your debt to income because that rent that they’re going to count and put against your income, it’ll either raise your income which will then offset the mortgage on your current home once it’s rented, or will allow you to lower the debt once sold. They have a couple other tools in their arsenal that help you secure a construction loan. OneTrust does not offer a DTI program that helps like Umpqua. If you’re in a specific circumstance where the DTI is an issue for you, go to Kinecta and see what they can do for you. We have two current clients that are working with them under that exact circumstance.
Pricing Resources for New Construction in San Diego County
I hope that was helpful. If you have any questions, feel free to reach out to us in regards to the lenders we talked about. Take a look around our website, especially our resources page, where you can get pricing on custom homes, ADU’s, and help on buying land. If you would like to connect with a real estate agent or custom home builder that we trust please visit our partners’ page at realpropertytv.com. Thanks for checking in today and have a great rest of your day.