Topic 4 of 8
New Construction Investment, Lehigh Valley PA: Northampton, Lehigh, and Carbon Counties.
A brand-new home has no rent history, which changes how a lender underwrites it. Investors typically use a construction loan that converts into a permanent rental loan, rely on an appraiser's rent estimate instead of tax returns, and plan for rate locks and appraisal gaps.
Financing terms vary by lender and change with the market, so treat the descriptions here as a map and verify current terms with a lender before you rely on them.
The two common structures are a two-step approach, a short-term construction loan during the build followed by a refinance into a permanent rental loan at completion, and a single-close construction-to-permanent loan that rolls both phases into one loan with one closing. Each has different cost and timing trade-offs, so compare both with a lender that understands investment property.
Because there is no tax-return rental history, lenders rely on the appraiser's projected rent schedule or a signed lease, and commonly count a portion of the projected gross rent to allow for vacancy and maintenance. The exact percentage and method vary by loan program, so ask the lender how they will treat the appraiser's rent estimate before you commit.
On construction-to-permanent loans, the permanent rate is often locked at the initial closing before construction begins, so you can hold that rate through the build, sometimes for a year or more. Some lenders offer a float-down if rates drop during the build. Locking protects you from rate increases while your home is under construction.
The lender will only finance up to the appraised value, so you would need to cover the difference in cash, negotiate the builder to lower the price, split the gap, or challenge the appraisal through a reconsideration of value. Some builder contracts lack an appraisal contingency, so read the contract carefully before assuming you can renegotiate a low appraisal.
Yes. Portfolio and blanket loans can group multiple rental properties under a single lender facility, and DSCR loans qualify you on the property's projected rental income rather than your personal income, which can help as your portfolio grows. These structures have their own requirements, so match the financing to how many properties you plan to hold.
Match the financing to the fact that the home has no rent history yet. A construction-to-permanent structure, an early rate lock, and a clear appraisal-gap plan protect your cash flow.
Tell Tim what you are evaluating and he will help you underwrite it with current Lehigh Valley data. No pressure, no obligation.
Tim Tepes is a PA Licensed Associate Broker with 36+ years in the Lehigh Valley and 700+ documented transactions. He specializes in investment properties and small multifamily assets across Northampton, Lehigh, and Carbon Counties.
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Cap Rates, 1031 Exchanges, DSTs & More, Everything You Need to Know About Building Wealth Through Real Estate Investing.
Compiled by Tim Tepes, PA Licensed Associate Broker with 36+ years of experience helping investors succeed in the Lehigh Valley and beyond.
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