Site development loans and mortgage financing can be required at different stages of an overall construction project for a number of different purposes.
The first type of site development loan that would be required would be for the development of raw land that likely had a prior use as agricultural property, forest or bush, or some other near natural state that would require site work before a construction project of any sort could be undertaken.
A site development mortgage on bare land for the purposes of development typically can be arranged for 50% of the property value. If the work completed allows the next phase of construction to begin, the property can be re-appraised to account for any increase in value that occurred from the site development work. The new equity can then be used to help secure additional construction financing.
The key for incremental construction financing based on the investment made will depend on a lender’s view of how much the property was actually improved and the extent to which a broader resale market now exists for the property in its semi developed state.
This first phase of site development can include landscaping, road ways, installation of services, and anything else that directly improves the function of the property.
When a construction site gets to a serviced stage, a construction site development mortgage of up to 75% of the appraised value may now be available to the borrower, builder, or developer.
Construction mortgages for site development can be provided by both institutional and private mortgage lenders. Each will have their own assessment criteria with the traditional lenders typically requiring a higher degree of financial support from the applicant.
Because a site development loan may only be one requirement of the overall construction project’s capital requirements, its important that whatever gets arranged and put into place will be congruent with financing strategy laid out for the rest of the project.
To properly finance a large percentage of construction projects, all stages, including site development, need to complete the work required to increase the value of the project in the eyes of the future lenders on a timely basis, otherwise the collective financing and cash flow plan can fall apart pretty fast.
If you’re planning a construction project, or are at the point of looking for a site development loan, I suggest you give me a call so that we can work together to not only get the best financing option in place for site development, but to make sure that whatever is arranged will line up with the rest of the project as well.
And if you’re in the middle of a project where the numbers aren’t lining up, give me a call as well so we can try to figure out how to get your overall financing approach back on track.