How Do You Get a Construction Loan for an Existing House?


As the name suggests, construction loans are typically given to investors who are planning on building a completely new house that will be non-owner occupied. So, when it comes to getting a construction loan for an existing house, there are two different ways you can qualify (but both ways require that you don’t have an emotional attachment to the house in questions):
1.      Your interest isn’t the existing house, but the land it rests on
2.      Your interest is only in the exterior of the house
Qualifications for a Construction Loan for an Existing House
The most common reason to get a construction loan for an existing home is because the home itself holds no potential value, but the land it sits upon is perfect for new construction. A hard money lender will help you finance the demolition of the house, as well as give you the capital you need to build a new home in its place.

Another reason to get a construction loan for an existing home is much more common in the commercial real estate landscape: demolishing the interior of the existing home and completely renovating it. That said, it is possible to find a house with a gorgeous exterior whose interior needs a drastic overhaul. A hard money lender can be instrumental in helping you get a project like this off the ground.

If you are planning on doing some light renovation to sell for a profit, or if you have a standard fix and flip scenario in mind, a construction loan isn’t right for you. Instead, you’ll have to work with your lender to find a more appropriate hard money loan.

How Do You Get A Construction Loan?
To get approved for a construction loan, you’ll need to have a few things squared away. First, you’ll need to have a finely detailed list of everything involved, from the cost of the demolition to the new floor plans to the cost of the build to your projected profits. And you’ll need to have a licensed and reputable builder lined up for the job (even if that builder is you).

As for the financial side of getting approved for a construction loan, you’ll usually have to have at least a 20% down payment (some lenders go as high as 25%). You’ll also have to show that you have the ability to pay back the loan, and the property value must be appraised.

If all that those things are in order, you can be approved for your construction loan and get to work on your new build.

Don’t Get Attached to the Existing House
As long as you plan on completely leveling the existing house, or demolishing its interior to completely renovate it, you can get a construction loan for a property with an existing home on it. And with this loan in hand, you can get started on building a brand new, highly profitable home — and start looking for your next project.

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