How the Right Financing Can Save Your Project

For builders, a successful project is one completed on time and within budget. But that is no easy feat these days. The construction industry has been hit hard over the past two years. From supply chain obstacles and price increase to labor shortages builders are forced to be dynamic in responding to these challenges.

In last year's report from the U.S. Chamber of Commerce, 92% of contractors report difficulty finding workers, and of those, 42% have turned down work and projects due to a lack of skilled workers. To throw more fuel on the fire, the Producer Price Index (PPI) report released by the Bureau of Labor Statistics showed that building materials prices increased 20.4% year over year.

As an experienced builder, we know these numbers don't come as a surprise to you. While things may not be trending in an upward direction, it's important to know how to be strategic in lining up financing with the right capital partner to help you through these downturns. 

So, what do you do when your construction project doesn't go according to plan? Let's dive into your financing options that can help get you back on track and over that finish line.

Construction Loans

Construction loans are short-term, interest-only loans that fund the building of a home. Whether its a tear-down or ground-up project, many lenders offer short-term construction loans often at a high rate due to the increased risk. Since these loans tend to have shorter terms, typically for a period of 12-18 months, developers have very little wiggle room for unexpected issues or delays during the building process.  

Paying off a Maturing Construction Loan Before Project is Complete

Whether it's because of increased material costs, labor shortages and other unfavorable factors maturing construction loans can be a big burden. When investors find themselves in a situation where they have a construction loan that will reach maturity before the project is completed, they have a couple different options:  

1. Rush to complete the project on time & risk not being able to deliver the project as they originally planned. 

2. Try to get an extension on the terms which comes with paying expensive extension fees or, even worse, no option from the lender to extend at all.  


3. They can look into other financing solutions that allow them to pay off the maturing loan, extend their loan terms, and complete their project while avoiding extension fees.  

When laid out, number three looks like the clear solution but often times builders opt for number two, hoping to just extend their original loan and deal with the fees. 

Why Should You Care About Extension Fees?

When it's time to pay off your construction loan but the project is not complete, most lender's will offer an extension in order to avoid maturity default. However, these extensions come with a price and typically can only be extended from 3 to 6 months. Now lets break that down the average extension fee is one to two points of the total loan amount. If you're construction loan amount is $3,000,000 with a one point extension fee, you would expect to pay $30,000 out of pocket to cover that fee. 

Here's why you should refinance that loan with a new lender. When you refinance, you avoid extension fees all together. Yes, you will have to pay an origination fee, but that cost is rolled into your loan so its not coming out of pocket. In addition to that, you get 12 months for your new loan vs. 3-6 months to get your project complete and sold in time. Talk about taking the pressure off. 

Need More Funds to Complete the Project? 

Mid-way through a construction or fix and flip project is not the time to run short on cash, but it is the time when property value traditionally goes up as the project progresses. With private money Bridge Loan solutions, investors can refinance and pull cash-out, sometimes up to 80% LTV*, on the established equity. This provides them with two valuable outcomes:

1. The ability to pay off a maturing construction loan 

2. and the ability to use the funds to see the remainder of the project through

What do Lenders Require to Finance Mid-Construction?

When structuring out a financing recapitalization mid-construction, lenders will need to determine project viability. Here are the key project milestones that can help with getting your deal approved:

1. House is weather tight. This means the roof is on, the doors / windows are installed, and the siding / stucco are complete.

2. Lenders will look for rough plumbing, rough electrical and HVAC. If those are installed, your project is looking good.

3. No mechanic's liens. A title report will be pulled to ensure there are no mechanic's liens on the property. Lenders want to make sure you are paying your contractors and sub-contractors.

These milestones are crucial because lenders have to make sure there is enough progress to determine the as-is value so they can provide you with enough funds to pay off the construction loan.

See the Power of CIVIC's Construction Completion Financing at Work 


LOAN AMOUNT: $922,000 

LOAN TYPE: Construction Completion Cash Out Refinance

LTPP (loan to purchase price): 92.2%  

This borrower was experiencing a project that was taking longer than expected and facing extension fees of their maturing construction loan. We were able to refinance their previous loan from a different lender which gave the borrower 12 more months to complete the project and the ability to avoid extension fees. They were able to use the funds to pay off their maturing construction loan, put money towards the remaining rehab budget, receive a lower interest rate, and get the time needed to sell the property. 

Short-term Financing that Gets the Job Done, Literally.  

Are you in the final stages of a construction project but a loan maturity is threatening to derail your project? Do you need to more time to complete your project but don't have room in your budget for pricey extension fees? Has your project gone over budget but there's still work that needs to be done? CIVIC's Construction Completion Financing is here to help you get your project across the finish line! 

Find more information here.

* 80% Cash Out is available to qualified borrowers. It is subject to decrease based on property condition. Terms and Conditions may apply.

Recent Blog Posts


{{post.Date | date: 'MM/dd/yyyy'}}