Frequently Used Terms
LTV (Loan To Value) – A ratio assessment used to compare the amount of your mortgage with the appraised value of the property. Lenders and financial institutions use this to assess risk before approving loans and mortgages.
ARV (After Repair Value) – A property’s estimated market value after it undergoes specific repairs and renovations.
LTARV (Loan To After Repair Value) – A value system used in real estate investments to understand the value of a loan in relation to the future appraised value of the purchased asset.
LTC (Loan To Cost) – A ratio metric that is used in commercial real estate construction to compare the financing of a project with the cost of building the project. Lenders and financial institutions use this to assess risk before approving construction loans.
DSCR (Debt Service Coverage Ratio) – A calculation to determine the profitability of a property.
Closing Costs – Fees related to the transaction, such as:
- Title Fees
- Lender Fees
- Escrow Reserves
- Transfer Taxes
- Recording Fees
Market Value – The value of the property if compared to other properties that have sold recently within the area.
Market Rent – The average rent in the area for a unit with similar size, room count, and finish quality.
Track Record – Referring to the borrower’s experience level. Track record is determined by how many deals the borrower has bought, held, or sold within the past 36 months.
Carrying Costs – Carrying costs refer to the cost of owning the property during the project and are important to include during the initial project pricing phase. These may include:
- Interest fees
- Property taxes
- Insurance
- Utilities
Frequently Asked Questions
How long does it take to close?
Typically, a closing time frame is the culmination of the appraisal, which averages 10-20 days, and the final underwriting and closing prep period, which averages 5-10 days.
What if this is my first project?
If this is your first project, interest rates will start higher and leverage amounts will be lower, as well as increased restrictions on the size of deal allowed.
What if I’m using a contractor?
Before working with contractors on projects, make sure your contractor has the proper licensing and insurance for your needs. In addition, they should be pulling permits for jobs that require them – if your contractor has been involved with your process correctly, it will not have any effect on loan acquisition.
What if I’m financing from out of state?
Clontz Capital welcomes clients from all over the United States, and we regularly finance solutions for out-of-state investors.
Can I get approved if I have a low credit score?
Most likely not. If your credit score doesn’t qualify you for a loan, consider finding a partner with a high credit score and (preferably) some real estate investment experience, then re-apply.
How do I get my construction loan funds
A construction draw schedule will be created once the appraisal comes back. You will send in a request for funds, an inspection of work will be conducted, and then your funds will be wired to you 3-5 days from request, so it is suggested to prepare your timeline appropriately.
How do I get approved?
Since Clontz Capital lends on a deal-by-deal basis, there is no flat-approval or pre-approval process. If the deal works, then we can do it – which means that the personal requirement of a qualifying credit score and sufficient liquidity for the downpayment and closing costs will be the deciding factor in approval.
What if an appraisal is lower than expected?
If an appraisal comes in low, typically, this leads to a required increase in your downpayment to accommodate the situation; however, we may have the option to switch the type of loan being written to fit the financial need of both the project and the borrower.
Are there any prepayment penalties?
Our DSCR loans are the only ones with a prepayment penalty, which is typically around 3-5 years. Fix and Flip, Commercial, and Ground-Up Construction loans are free of prepayment penalties.
Can I apply for multiple loans at once?
Yes! The first level of financing covers up to an aggregate balance of $10 million. We have the ability to go above and beyond that for our more experienced investors.
