Ground up construction loans for investors and builders: how draws, budgets, and exits work for new residential and commercial projects. Pre-qualify today.
A ground-up construction loan finances the building of a new property, from vertical construction on a lot to completion. Unlike a purchase mortgage, the money is not delivered all at once. Funds are typically released in stages, called draws, as construction milestones are completed and verified.
FundLogic arranges new construction loans for investors and builders as part of our real estate financing programs. Common projects include:
Before closing, you submit a detailed construction budget, plans, and a timeline. The lender sets up a draw schedule tied to stages of the build, such as foundation, framing, rough-ins, drywall, and finishes.
1. You complete a phase of work, often paying your contractor or subs up front. 2. You request a draw for that phase. 3. An inspector visits the site to confirm the work is done. 4. The lender releases the funds for that phase.
Interest is typically charged on the amount drawn rather than the full loan amount, and payments are usually interest-only during construction. That keeps carrying costs aligned with progress, but it also means you need working capital to keep the job moving between draws.
Construction lenders usually size the loan against the total project cost (land plus hard and soft construction costs) and the projected completed value, then lend the lower of the two calculations. Land you already own may count toward your equity.
Costs that typically go into the budget:
Construction is the most hands-on type of real estate lending because the collateral does not exist yet. Expect lenders to review:
Getting your documents organized before you apply, including stamped plans, bids, and a realistic schedule, usually shortens underwriting and reduces surprises at closing.
Construction loans are short-term by design and are repaid one of two ways:
If a completed property needs time to lease up before it qualifies for permanent financing, a bridge loan can fill that gap.
Ground-up construction loans generally carry higher rates and fees than permanent loans, reflecting the risk of financing a property that does not exist yet. Expect origination fees and inspection or draw fees in addition to interest.
The biggest risks are timeline and budget. Permit delays, weather, labor shortages, and material price changes can all extend a project and add interest. A conservative budget, a real contingency, and a builder with a track record protect both you and the deal. If you are renovating an existing structure rather than building new, a fix and flip loan may be a better fit.
Often, yes. If you own the lot, its value or your equity in it can typically count toward your contribution to the project, which may reduce the cash you need to bring. The lender will want an appraisal or other support for the land's value and clear title.
Not always. Many programs lend to investors who hire an experienced, licensed general contractor. Lenders will review the contractor's track record and the construction contract. Borrowers with their own building experience may qualify for better terms, and first-time builders may face lower leverage.
Construction loans typically run for the length of the build plus a cushion, often around 12 to 24 months depending on project size, and some offer extensions for a fee. The term should account for permitting, construction, and the time to sell or refinance.
Expect to provide plans and specifications, a detailed budget, contractor bids or a signed construction contract, permit status, a project timeline, proof of land ownership or a purchase contract, and personal financial information such as credit, bank statements, and a schedule of real estate owned.
Some lenders offer construction-to-permanent loans that convert to long-term financing at completion, but many investor construction loans are short-term and repaid through a sale or a separate refinance. We will explain which structure fits your project and your exit plan.
Share your plans, budget, and timeline, and we will help you structure financing for your project. Pre-qualify now — it will not affect your credit. Or compare our other real estate financing programs.
