Vanguard Hard Money
 California's Premier Private Money Lender
CALL US! 800-427-1441
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Lending for California Only

FAQ CALIFORNIA CONSTRUCTION "SPEC LOANS"
FREQUENTLY ASKED QUESTIONS
Click the question below to reveal the answer.

What is SPEC Construction?

Contractors, builders and investors who are building a property without a guaranteed sale at the time of completion are said to be building on "SPEC". SPEC is short for “Speculation”.

These individuals, partnerships and companies are speculating that they will earn a profit when they sell the newly constructed property. Vanguard Hard Money has financing specifically designed for these types of projects.

What types of properties will Vanguard Hard Money approve?

Our program is specifically designed for detached single- family residences (SFRs). However, we will consider apartments, mixed-use and commercial properties if the general contractor has acceptable prior experience and the borrower has sufficient cash reserves.

• Single Family Residences (SFRs)
• Apartments
• Duplexes
• Triplexes
• Fourplexes
• Multi-Family Dwellings
• Modular Homes
• Manufactured
• Mixed Use properties
• Light Commercial

What is Incremental Funding?

Incremental funding is the release of money during various stages of a construction project. The total amount of the loan is not released all at once, but is released in smaller amounts referred to as increments or draws.

For example, with a $300,000 loan, the borrower may receive $75,000 at the start of the project. Then as the project continues, the borrower can request additional increments of money as needed to complete the project. The borrower benefits because interest is only paid on the amount released. In our example the borrower will only pay interest on the $75,000 until additional funds are released.

Do borrowers pay interest on the full amount of the loan?

No, incremental funding is provided for our SPEC and New Construction loans.

Example: If the borrower is paying 12% interest on a $300,000 loan, his first increment of funds might be $75,000. Monthly interest payments on $75,000 would be $750. If the borrower were to go with a non-incremental funding loan, he would be making monthly payments on the total loan amount of $300,000, which equals $3,000. The Vanguard Hard Money loan saves the borrower $2,250 a month until further amounts have been drawn. That is a LARGE savings to our borrowers.

Some restrictions may apply, please ask your loan agent for further clarification.

Do I have to be a contractor, builder or developer to be approved for a SPEC construction loan?

We prefer General Contractors with past experience.  We will consider Owner/Builders and Investors with the assumption that a licensed contractor or sub contractors will be used during the construction process.

What is Future Value?

Future value is the appraised value of the property as if it were completed today.  The appraisal assumes that the construction is completed within a specific time period and is compared to like properties in the immediate area.

How is Loan-to-Value (LTV) calculated?

Loan-to-value is calculated when you take the loan amount and divide it by the future value of the property.  For example, if you have a project that has a future value of $500,000 and you need a loan for $300,000 to complete the project, your loan-to-value would be 60%. 

$300,000 / $500,000 = .60 or 60% . 

How fast can I obtain financing for my SPEC project?

The application process takes 24-48 hours after we have received your:

1) Completed and signed application.
2) Income requirements vary, both Full Documentation and Stated Income programs are available.
We will ask you to prepare a line item construction budget. Once the budget has been submitted we will order a future value appraisal of the property. The appraisal takes about 5 to 30 business days, depending on the type and size of project.

After the appraisal has returned we can prepare loan documents for you to sign.

How much financing can I receive for my SPEC project?

It depends on the future value of your project when completed. We lend using the future value of the property as if it were built today. We typically lend up to 75% of the future value.

How Do I Request A Draw?

Call to arrange for an inspection of your property. It typically takes 1 to 3 days to get an inspector out to your property. Construction funds are released in increments based on the approved line item budget. After a successful inspection has been made we can authorize release of the draw.

How many inspections are required and what are the cost associated with each inspection?

On average there are 7 inspections per project.  The number of inspections can vary depending on the project type and amount financed.

Each inspection is performed by an independent 3rd party inspector. Each inspection costs approximately $125.00 to $300.00.

What are "On-site" and "Off-site" costs?

On-site costs are costs associated with the labor and materials used for the actual construction of the property.  Off-site costs are indirect costs, those not directly related to labor or materials for construction.  Examples of off-site costs include: building permits, city and county fees, and architectural fees.

How much time is allowed to construct and sell my property?

Most projects are completed in six to twelve months. Most loans are written for twelve months.

What is the lender's contingency account?

A lender's contingency account is money set aside for unforeseen circumstances or cost overruns that may occur during the construction or improvement of a property. Disbursement of these funds is on an “as-needed” basis and will generally be in proportion to the completion of the property. Of course, as with other costs, a Draw Request is required for disbursement of these funds. Once construction is complete, any money remaining in the Contingency Account can be disbursed to the borrower.

What happens if there is money left in the construction account upon completion of the project?

After the project has been completed, we will disburse any remaining funds to the borrower’s account.

What is "Fund Control"?

Fund control refers to the oversight of drawing and releasing payments to construction project participants (e.g., contractors, subcontractors, vendors, suppliers) in accordance with a job performance agreement and includes receiving proper documentation and lien waivers which match the payee name and the payment amount specified in the agreement.

Does Vanguard Hard Money require a fund control during the construction period?

Yes.  It is necessary to have a fund control or voucher control system in place.  Fund control protects the interests of the contractors, owners, investors and lenders.

Is there a fee for fund control?

Yes.  Ground-up construction requires a fund control. The fee is based upon the dollar amount of the construction budget. This cost is typically 1/2 to 1 point of the construction budget.

How much can I borrow?

It depends on your ability to qualify for the financing. We want to make sure that you can afford the monthly payments. Most of the time we do however build in pre-paid payments so there are no payments during the duration of construction.

My tax returns don't show much net income because I run my expenses through my business. Will I qualify for a loan?

We do not ask for tax returns. Approval depends upon several factors. The primary source of repayment for a spec construction loan is the sale of the property, and not the borrower’s income. We review the borrower’s bank deposit statements, past credit history and ability to financially carry the property.

What is the minimum credit score I need to qualify for a SPEC construction loan?

We prefer a credit score of 650 or higher. However, we accept credit scores as low as 500.

Where can I find pre-drawn house plans?

House plans can be found by doing a Google search at www.google.com.  Enter in the phrase “house plans” or “floor plans” in the search window.  Then press enter.

Here is a simple list of sites found with a quick search:

Dream Home Source: www.dreamhomesource.com
Houseplans.com: www.houseplans.com
Eplans.com: www.eplans.com
Cool House Plans: www.coolhouseplans.com
Architectural Designs: www.architecturaldesigns.com