Construction Loans in Texas
Planning to build a home, business, or investment property in Texas? Josh Moody Loans offers construction loan guidance for new construction and renovation projects.
Construction loans are short-term financing based on the finished property’s value and overall project costs. Depending on your project, funds may cover land, building plans, permits, labor, and materials. Requirements and terms vary by project.
What Is a Construction Loan?
A construction loan is short-term financing for building a new property or renovating an existing one. Unlike financing for an existing property, it is designed around the project’s plans, costs, timeline, and the expected value of the finished property.
Construction loans can fit several scenarios, including an owner-occupied home, a business property, or a non-owner-occupied investment property. A lender will review the project and the borrower’s information to determine whether the loan fits.
How to Get a Construction Loan in Texas
Start with your project’s budget, estimated timeline, building plans, and intended use. Josh Moody Loans can review whether the project and financing needs align with a construction loan and explain the available terms and documentation.
Construction Loan Process
- Share your project details. Provide the estimated budget, timeline, building plans, and intended use of the property.
- Review project fit. The lender reviews the project, expected leverage, property value, and available financing options.
- Prepare documentation. Be ready to discuss bank statements, credit score information, appraisal needs, and other documents requested for your project.
- Close and fund the project. After closing, a portion may be used for the property or land, while remaining funds may be held in escrow and disbursed in stages based on agreed project phases.
Common Construction Loan Requirements
Requirements vary by project and borrower. Common items may include:
- Expected leverage: In many cases, the property’s loan-to-value ratio needs to be above 70–75%.
- Bank statements and credit score information.
- A building plan with an estimated budget and timeline.
- An appraisal to assess the property’s potential value.
- Relevant experience managing real estate construction projects, when available.
A credit score of 680 or higher is often a useful benchmark for construction financing, but minimum requirements vary by situation.
Construction Loan FAQs
Financing construction is an important step in reaching your investment goals. It’s ok to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.
Construction loans can be used for new construction or to renovate an existing building. They’re available to a range of people, from real estate investors to homebuyers.
You may qualify for an owner-occupied loan as a business or consumer. For example, as a consumer you may want to build your new dream home, or as a business, you may want to build a new office building for your team. Maybe you want a non-owner occupied loan and need to qualify as an investor who plans to build a property and sell it. With a strong and clear building plan, construction loans work well for many scenarios.
Construction loans provide financing for a specific investment purpose. They cover the costs of planning and building real estate, rather than the funds to purchase or refinance an existing building. For this reason they’re offered with shorter term lengths, meant to cover the timeline of the project. Because these investments are also riskier for the lender, as there isn’t yet an existing building, the interest rates are also slightly higher for construction loans.
They meet the unique financing needs of construction projects by offering flexible qualification requirements based on the value of the finished property. This makes them more accessible than standard loans that require certain income and other documentation related more to the borrower’s personal finances than the project itself.
Although your personal income isn’t considered for financing, you will need to share your credit score to get approved for a construction loan. The minimum requirements vary depending on the situation and can be more flexible than standard banks allow. In many cases a credit score of 680 or higher is often best.
When you close on a construction loan, a portion of the loan amount is immediately used to purchase the property or land. The remaining balance is kept in an escrow account, which is then disbursed to you, the borrower, as the project proceeds, based on agreed-upon phases of the project between you and the lender.
There are closing costs associated with processing any loan, and the costs of a construction loan are comparable to standard mortgages. They include costs for the lender to service the loan, as well as an appraisal and other fees.
You’ll also need to make a down payment that will be paid at closing. The down payment amount will depend on the specific details of your project and your equity.
Discuss Your Construction Project
Have a project in mind? Share your budget, timeline, building plans, and intended use of the property with Josh Moody Loans. We can help you understand whether construction financing may fit your goals and what information to prepare.