How to Finance a Middle Housing Project

Most owners fund middle housing with a construction loan secured by the land and the project, then either refinance into a long-term mortgage, sell units to pay the loan off, or combine both. Owner-occupants building two to four units can often use residential loan programs; investors and projects of five or more units usually need commercial or investor financing.

The Main Loan Types

What Lenders Will Ask For

• Land ownership or purchase contract
• Feasibility package: zoning confirmation, site plan, budget
• Stamped plans and an approved or near-approved permit
• Fixed-price or detailed cost-plus construction contract
• Builder's license, insurance and track record
• Appraisal "as completed," often with rent or sales comparables
• Your equity: land value usually counts toward it

Using the Land as Your Equity

If you own the lot outright, its appraised value can satisfy most or all of the lender's equity requirement. That is one of the biggest advantages existing owners have over buyers who must purchase land first.

Sell-Down Strategies

Townhomes on unit lots let you release individual homes from the construction loan as they sell. Selling one or two homes can retire the debt on the rest, leaving you with rentals that carry little or no mortgage.

Common Financing Mistakes

1. 01
   Getting design done before talking to a lender — then learning the lender will not finance that unit count.
2. 02
   No contingency in the budget.
3. 03
   Underestimating carrying costs during permit review.
4. 04
   Choosing a condo structure without checking lender requirements for condo projects.

How We Help

Our feasibility package is formatted for lenders: budget by cost group, schedule, site plan and projected values. We work with your lender's draw inspector throughout construction.