Hard Money Construction Loans – Financing to Build a House

Are you thinking about building a house? This doesn’t mean a house a builder finances and then sells, but instead you acting as the general contractor.

When you build a house, you are in charge of everything from start to finish including the financing. But because there isn’t a house to use as collateral, most traditional lenders will turn you down.

You need construction loan financing, which can cost just as much as a mortgage but have different parameters. Most borrowers have the most luck with hard money construction loans because they fund fast, provide the financing you need, and allow you the freedom to build your home.

How Hard Money Construction Loans Work

Hard money construction loans are based on the architectural plans, the contractor’s promise, and your ability to pay the loan.

These loans are short-term. They are due in full by the time the house is built and ready for occupancy which is why they are good for investors. You build the home and then sell it. When you sell it (for a profit hopefully), you pay off the loan and keep the proceeds.

Most hard money loans require interest-only payments while you’re building the home and the funds are disbursed in phases as agreed upon with the contractors and lender.

Qualifying for Hard Money Construction Loans

Like any loan, you’ll provide proof you can afford the payments including your income and asset documentation. This will also prove you have the money to put down on the project (your investment).

Most lenders also require:

  • Architectural plans
  • Budgets
  • Contracts with any contractors
  • All fees
  • Material costs
  • Timeline for the building

Lenders use this information to decide if you’re approved. It helps when you already own the land, you’re building the property on as that can be part of your collateral. But if not, you can use the loan to purchase the land too.

What if you Keep the Home?

If you decided to keep the home after building it. Maybe you rent it out to make monthly income or you decide to live in it, you’ll need to refinance the hard money loan with a regular mortgage.

As long as you can qualify for a regular mortgage and pay off the hard money loan, you can do what you want with the home. At Save Financial, we work with many lenders that offer different programs to help you qualify for the financing you need.

Final Thoughts

Building a home to sell can be a great way to invest in real estate, and a hard money loan can be a great way to reach your goals. They fund fast and don’t require nearly as much documentation as a traditional mortgage.

If you’d like to see how a hard money construction loan can help you achieve your real estate dreams, contact us today. We’ll help you explore your options and understand how to finance building a home to make your real estate dreams come true.

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