Qualification Requirements: Hard Money Construction Loans
Get a simple glance at the construction loan requirements investors can expect from Capstone Capital Partners when they apply for hard money financing.
Hard money loans for construction projects are nearly always meant for real estate investors and developers who require fast and efficient funding solutions. Hard money loans are not suitable for owner-occupied homes or individuals looking to purchase their primary residence. These loans are particularly useful for those who might not qualify for traditional financing due to tight timelines, unconventional properties, or a lack of liquidity.
You’ll wait a lot longer to get a construction loan through traditional banks (30-60 days). An efficient hard money lender can have you funded in about 7 days with an appraisal in hand.
Qualification Requirements for Hard Money Construction Loans
Photo by Pixabay
Every hard money lender's criteria for construction loans vary slightly, but here’s what you can expect from Capstone Capital Partners:
Loan-to-Value (LTV) Ratio: Hard money construction loans typically offer a 70% LTV, which is slightly higher than rehab loans. This means the loan covers 70% of the project's value.
Loan Amount: These loans usually range from $1 million to $5 million. This range accommodates various project sizes, from single-family residences to high-end multifamily properties.
Liquidity Requirements: Unlike traditional loans, Capstone Capital Partners does not have strict liquidity requirements.
Borrower Experience: First-time borrowers are considered. An application from a first-time construction borrower is strengthened when they have successfully completed and exited other projects (even if they were smaller rehab properties). Oftentimes our new construction borrowers are actually contractors building for other people.
Loan Term: The term typically spans 12-24 months, depending on the number of units involved.
Down Payment: Down payments for construction loans can be as low as 10%, though established borrowers may find even more flexibility at our discretion. Down payment requirements are determined on a case-by-case basis. We work hard to preserve borrowers’ liquidity.
Draw Process: Capstone’s servicing construction manager or inspector checks progress before approving draws.
Property Types: All property types are acceptable for hard money construction loans. This includes SFR, SFR multifamily, commercial multifamily, and commercial properties.
Income requirements: Hard money lenders — Capstone included — virtually never consider income as a requirement for construction loans. Our criteria is more heavily weighted toward profit potential of the hard asset itself (the property).
Read more: Multifamily Building Classes & Types
“Capstone’s stage funding has saved borrowers millions of dollars in interest.
Capstone’s construction borrowers only pay interest on the portion of their loan that has been funded up until their present time in the draw process. That means they don’t pay interest on the entire loan amount during the entire loan term on stages that have not been funded yet. Not every lender gives borrowers this privilege.”
How to strengthen your application to get approved for a construction loan
Exit Strategy: A clear plan for how the project will produce a profit is something every lender needs to see. Whether it's selling the property upon completion, refinancing into a conventional loan, or renting it out, lenders will want to see a realistic plan.
Property Appraisal: Hard money lenders will require an appraisal to determine the property's value. This appraisal considers the project's potential value once completed, rather than its current state. Appraisals also speed up your approval process if you have them ready before contacting the lender.
Regulatory Compliance: Ensure your project complies with local zoning laws, building codes, and other regulatory requirements. Non-compliance can lead to delays and additional costs (which translates into a headache for your lender 🙂).
Insurance Requirements: Plan for the unexpected. Your lender will consider proper insurance as a positive indicator.
Read more: 7 Important Types of Insurance for Real Estate Investors
Let’s build something new together!
Capstone Capital Partners funds new construction projects all across Texas. Our combined experience totals to more than $500M in closed loans. From origination through servicing, your loan stays in house with us. Most of our borrowers are long-time clients and friends.
Here are other resources you may find useful:
Ready to learn more? Simply answer a few easy questions about yourself and the type of project you may want to fund. We’ll be in touch!
