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How much "Skin in the Game" do I need?

Maricopa County, the largest county in Arizona and one of the largest county in the USA, had over 22,000 building permits issued in 2007. This estimate is provided to me by Construction Monitor, LLC. With in this 22,000 there were some quite large home built and many of them still being built. The ultra luxury home that is 10,000+ square feet can take 2 or more years.

Now here is a question that I received today; What is the largest construction loan I can do? My answer is pretty simple: there is no limit. If you want to build a $20 million mansion I can finance it. My question to you is do you have $10 million dollars to put down and can you document income enough to support such a payment. This illustration is a inflated to make a point, it is not the dollar amount that is in question, but how much money do you have to put in the project.

Simple rule in construction loans: the higher the loan amount the more money an individual needs to invest in the project.

I wish I could just write out a simple formula about how much money is needed, but because construction loans are so unique and have variables like lot equity, sweat equity (owner builders), cross collateralization and so on. It is very difficult to group everyone together.

If anyone ever has a client that needs some guidance, email (troy@cffinfo.com) me the answer to these questions and I can tell you what money they need invested into the project. In the construction industry we call this "skin in the game".

Do you own the lot?

If so, when did you buy?

What is the lot balance?

What is the lot value now?

What are the construction costs?

What is your completed appraised value?

What is your estimated credit score?

Can we fully document your income or do you need stated income loan?

With this information I can create a starting point as to loan type and capital required to close your construction loan.

Troy Schuricht