Before applying for land acquisition and development or construction financing loans, we will need to make sure you have all the required documentation. We have pre-determined requirements on what you will need to have prepared in advance, before we will start the process of quoting or accepting an application. Below are the documents we require to review your project:
- An Executive Summary or an outline of the Project.
- Capital Requirements
- Detailed Construction Budgets and Plans.
- Three Year Pro Forma for the Project.
- Last Two Years Complete and Third Year Trailing Income Statements & Balance Sheets.
- Resumes of the Principals including past completed projects.
- Financial Statements for the Organization and Principals
- Three Years of Tax Returns for the Organization and Principals.
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Land loans and development construction financing is complex. Funding is only approved if the project is sound and proven to be so. Sometimes, two separate transactions are required. First is the land acquisition loan followed by the development and construction loan. They will typically be the same lender and the ground purchase lien will usually subordinate to the development and or construction lien. Another approach is to do one development and construction loan where the first draw is used for financing the ground purchase. This allows for only one lien and a simplified transaction.
The construction development loans as well as land acquisition financing must be supported by a reliable source of repayment. In the case of a residential multi-family or apartment project this would include the unit pre-sales or pre-leased. Many think it is easier to just buy the ground, get city and county approvals, pre-sell or pre-lease the units then apply for the construction loan. In theory this is good, however the risks for buyers or tenants to drop out before completion are high. A good lender partner from the start on a sound project with an experienced developer is always the best approach.
There must be a planned use for the property in the next year. If not, then the request will be considered speculative in nature and will not offer the most advantageous terms. Financing land acquisition, development and constructions loans require detailed planning. The reason for this is because funding the ground purchase is only a temporary vehicle used as a starting point to get the whole project started. They are underwritten with the proceeds from the expected construction loan to be the method of repayment.
Location, intended use and how successful other developers’ comparable projects will also be evaluated. This goes further than proposing to build a 150-unit condominium project in an area that has a sustantial amount of currently unsold condo units. It also addresses making sure that your location is appropriate to the type of development that you are planning.
Some of our requirements are a detailed budget plan, past personal or corporate financial statements, tax returns, and an executive project summary. Also many lenders require that you place a certain down payment on the requested amount. Raw land loans are not always easy but if you have the capital, credit, and the right development plan you have a good chance of being successful. The lender needs to know the details behind the planned project before they're willing to lend you money. It's not going to be standardized like mortgages underwritten to Fannie Mae guidelines. That said, there are some common features. They typically require interest-only payments during building phase and become due upon completion.
Construction, land acquisition and development loans are usually variable-rates priced above the prime rate or some other short-term interest rate index. You, the contractor and our source establish a draw schedule based on phases of construction, and interest is charged or accrued on the amount of money drawn to date. This type funding, unlike most mortgages, isn't meant to be long term.
If you already own the ground, then that can be considered as "equity" on the development or construction financing.This equity can be used to collateralize the start up costs of developing the land and starting breaking ground on construction. Many developers use our programs where the construction funding is converted to a mortgage after the certificate of occupancy or C/O is issued. The advantage is that you one time close with only one lender. To find out more please contact us at 888.447.7314 or submit your project request here.
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