SFR Construction Loans

I am looking for an SFR construction loan. It would be used to cover build-out expenses for a 3/2 home in southern Texas (I already have the land). Total expenses are anticipated to be $50K, with a comp value of 75-80K. Total land capacity is 40 units. I would also like to make the financing ‘rollover’ to the next unit, as units are sold. I have a good GC and will be using partially pre-constructed home kits, so costs are easy to track and build-out times are minimal. My credit is so-so at about 650. What is the best way to approach financing for this type of deal?

So, if I’m understanding this correctly, you need financing for the entire project- all 40 lots?

Yes, eventually. I just don’t know how to approach it,

  • would it be easier to use an HML to construct the first few units, and then self fund?
  • would it be better to get an overall construction loan with draws for each unit?
  • would it be cheaper to get a smaller construction loan to fund 1 or 2 units and have the loan rollover to the next 1 or 2 units, etc… until completion?
  • or another scenario that I haven’t thought of?

I would like to go into this with as little cash as possible of course ;-), I own 19 apartments in the area with about 100K in equity that could be used as collateral and, though I really don’t want to refinance, a second would be OK.

Without a good credit rating and a 5+ year track record of successful development you’ll likely get nowhere with lenders… my bank, Indymac also just announced that we are out of the subdivision lending business for the foreseeable future.

So what’s the solution? Abandon the traditional development finance model (i.e. developer finances construction then sells completed homes) and move all of the risk and credit worries to the end buyer. You can do this by marketing the development prior to breaking ground. Individual buyers can qualify for construction financing putting all the risks on them. Offer them an incentive like a price reduction, utilize a waiting list then close a group of them concurrently (say 5).

With this model your credit doesn’t matter, your track record as developer doesn’t matter, and what happens to the local market (i.e. if values drop before completion) isn’t your problem. The trick is finding a savvy Realtor who knows how to market these kinds of pre-development deals.


You may want to start relationships with local banks. I have a builder friend that does all his construction loans through a local bank. I am not talking about a local branch but a small local bank.


Small local banks are the way to go. I am Texas as well and I use Prosperity Bank for all of my construction loans. They typically UW on a make sense mentality instead of guidelines on a piece of paper that just don’t apply to every deal. Your credit is not bad. As long as you have income and some assets you should be able to get this deal up and running.

It would also be helpfull for that savvy Realtor to have a model home. That gives your buyers something to touch and feel so they can see what to expect. It’s also a good place to show the layout of the development, floor plans and upgrade samples.

In reference to 'BuildEquityLender’s post. has anybody tried this? and if so, how did it work out?

Any additional information about this type of financing would be appreciated.

-Thanks in advance, Andy

That is how the large builders do it. But most of them have a model to show to prospective buyers. It is hard to sell a house to a large group of nbuyers when you have nothing to show them. The model that he describes also works well on large acreage developments. That is how Bluegreen and LGI do it.