New Construction Loans

A new construction loan is used to finance projects where the investor is demolishing the existing property and rebuilding from the ground up, or the investor has a permitted lot to develop. This is different to fix and flips where improvements are made to an existing property to increase the sale value.

To ensure projects adhere to the stated budget and timelines, new construction loans are phased out, whereby a portion of funds are distributed in stages while the remaining funds are held in escrow. Once a phase of the project is complete, the work is inspected to ensure it meets the details outlined in the scope of work and when the hard money lender is satisfied that it meets the requirements the next portion of funds are released. The draw schedule which determines when funds are distributed are based on the scope of work which describes each phase of the project in detail and the expected timeline.

Interest rates start at a competitive rate, but are dependent on a number of factors, including project type and complexity, value of the project, loan size, location, and borrower experience.

We fund 1-4 Unit developments, with a minimum loan amount of $100,000 and a maximum amount of $5M.

Multi-family, mixed-use properties, condo developments, townhome developments and built-to-rent developments have a maximum loan amount of $20M.

Applying is easy, just give us a call or click the apply now button. You’ll need the following information handy.
Be prepared with: 

Information about the project: 

• Address
• Property Type
• Acquisition or refinance cost
• Construction budget and plan, including, direct, soft, and hard costs
• Expected value of completed project and income, if applicable

Information about yourself: 

• Experience with similar projects
• Job and stated income
• Liquidity (cash and retirement accounts)
• Other real estate owned
• Credit score – We only run credit if we have to. But keep in mind that low credit is not a barrier to getting a loan.

Documentation may depend on the situation and requirements, but typical requirements include

• Sales Contract or HUD from original purchase
• Entitlements Permits for development, proof of utilities and road access
• Plans and specs
• Construction Budget
• Bank statements
• A list of properties you currently own (an REO Schedule)
• Experience with Similar projects
• Credit and background checks
• Rental income (for rental projects)
• Two years of tax returns
• LLC Operating agreement or Articles of Incorporation
• Builders risk and general liability insurance, assigned to Norfolk Capital
• Feasibility study and as-is and after renovation appraisals to be ordered before underwriting
• Environmental Screen Report  if there is no existing building

Liquidity at closing depends on a number of factors, but will include funds for: 

• Down payment
• Money to start work on your project
• Closing costs and loan fees
• Interest payment reserves

Some of this will be collected at closing, some of it we will want to see in your bank statement to make sure you have the liquidity to keep the project moving.

We will fund up to 85% of the cost of the project. This means we will fund 85% of the cost or as-is value of the property, plus the 85% of the construction costs. We do have some programs that will fund more than 85%, for the right borrower and project. The best bet is to call for a free consultation to see what we can do for you.

The construction budget is held in reserves at closing, and typically interest is not charged until the funds are used.  Funds are accessed through a draw process. Once a portion of the project is completed, you request a draw inspection.  The inspector typically comes out within 48 hours to review work and submits a report.  In some areas, this is a member of the Norfolk Team who partners with you throughout the process.

Hard money loans are focused on asset-based underwriting.  As a result, credit score is less important than the project and other factors such as your experience.  We’ll want to understand the situation behind your credit score, but borrowers with bad credit qualify for hard money loans all the time.