A Developer’s Guide To Residential Construction Lending

A Developer's Guide To Residential Construction Lending

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? 2017 Banc of California, National Association. All rights reserved.

This guide is a valuable resource for the professional developer planning to build or rehabilitate a home. It provides in-depth information on financing options, costs and tools available at Banc of California to help you plan your project's financing.

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? 2017 Banc of California, National Association. All rights reserved.

Table Of Contents

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4 The Construction Loan Overview 5 The Construction Loan Budget 6 The Construction Loan Process 7 Get Started

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? 2017 Banc of California, National Association. All rights reserved.

The Construction Loan Overview

How Does The Construction Loan Process Work At Banc of California?

As you are aware, the construction loan process and documentation is very similar to that of a standard purchase or refinance transaction; with the addition of project specific construction documentation. Additionally, the collateral is appraised at a future value or Subject to Completion "STC" value. In order for the appraiser(s) to accurately valuate your project, we provide the appraiser(s) your cost breakdown along with plans and specifications. Also, whether you are an Owner/ Builder or a developer who hires a General Contractor, we evaluate you and/or your General Contractor through our Builder Eligibility process. Here, we review the experience, past history, track record and credit worthiness of those involved in the project.

For construction loans, the following documentation is generally required in addition to the standard credit documentation. Your assigned Senior Loan Officer will provide you a list of documentation required for your project and specific loan scenario.

? Final Plan and Specs ? Architect Contract ? Construction Contract ? Line Item Cost Breakdown ? Budget ? Contractor Questionnaire ? 2 Years Tax Returns ? Personal Financial Statement ? Formation Documents ? Liquidity Statements ? Construction History ? Development Experience ? Schedule of Real Estate

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? 2017 Banc of California, National Association. All rights reserved.

The Construction Budget

What Makes Up The Project Costs?

Acquisition Price Construction Costs Contingency (5% of costs) Interest Reserve Loan Fee Loan Admin/Inspection Fees Underwriting Fee Third party closing costs Total Costs Subject to completion value Minimum Equity (Down Payment) Loan Amount

$825,000 $1,000,000 $50,000 $107,919 $11,250 $3,500 $1,500 $9,900 $2,009,069 $2,500,000 $510,000 $1,500,000

There are a number of costs that we include in your loan budget.

Soft Costs

Acceptable costs are permit fees, engineering fees, architectural fees, inspection fees and other costs associated with the construction or rehabilitation of the home, but are not directly a part of labor or materials in the project. Any pre-paid items may be considered as "equity," if you can document the cost with a bill and a canceled check or a paid receipt.

Hard Costs

Acceptable costs are the actual cost of all labor and materials associated with the project. Your construction contract will set forth the work to be done and the costs associated with the proposed project.

Closing Costs

Included are all costs associated with the closing of the loan, such as title costs, loan fees, discount fees and appraisals.

Contingency Reserve

We pad your budget with a reserve account to cover unforeseen cost overruns in the construction or remodel of the home. Depending on the complexity of the proposed project, the contingency reserve is generally between 5 and 10%.

Interest Reserve

This account is established to pay the monthly payment during the construction period and is included in your budget. We typically allocate to 60% of the outstanding commitment.

Existing Lien

If you own the property, then the current balance will be included in the total cost of the project to be financed. If the property is a purchase, then the purchase price is included in the cost.

Land Draw

On occassion, we will allow for a one-time land draw up to 60%.

Final Draw/Holdback

Once the work is complete, the final inspection is made, and you have received The Certificate of Occupancy (CofO) your remaining construction funds can be disbursed. As with all draws, lien releases will be required to verify that all contractors and subcontractors have been paid.

Maximum Loan Amount

The maximum loan amount is based on total project costs, and is determined by loan guideline limits. The lower of loan to value or loan to cost will be used to determine the maximum loan amount.

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? 2017 Banc of California, National Association. All rights reserved.

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