Ground-Up Construction Loans
Fund entire building projects from land purchase to completion. Draw-based disbursement, interest-only payments, and high leverage options for new residential construction.
Ground-Up Construction Loans: Fund Entire Building Projects from Start to Finish
Ground-up construction loans provide builders and developers with comprehensive financing to fund entire building projects from land purchase through completion, covering all construction costs with flexible draw-based disbursement.
This specialized program recognizes that successful construction projects require funding that covers the entire build process, from land acquisition to final completion. Traditional financing often can't accommodate the unique needs of construction projects, which require staged funding and different payment structures during the building phase.
For experienced builders, developers, and investors seeking to fund new residential projects, ground-up construction loans offer the comprehensive financing needed to bring projects from concept to completion with high leverage and flexible terms.
What is a Ground-Up Construction Loan?
- Definition
- Ground-up construction loans are specialized financing programs that fund entire building projects from land purchase through completion, including materials, labor, permits, and other construction costs. These loans use draw-based disbursement and typically offer interest-only payments during construction.
- How it works
- These loans cover the entire build process with money released in stages (foundation, framing, roofing, completion) to match construction milestones. You make interest-only payments during construction, and the loan typically converts to permanent financing or is repaid upon completion and sale.
- Key advantage
- Ground-up construction loans provide comprehensive funding for the entire project lifecycle, from land acquisition to completion, with high leverage options and flexible disbursement that matches construction progress rather than requiring all funding upfront.
Ground-Up Construction Loan Eligibility Requirements
You may be eligible for a ground-up construction loan if you meet these key requirements:
| Requirement | Details |
|---|---|
| Credit score | 680 FICO score minimum (higher preferred) |
| Experience | 2-3 prior completed projects minimum |
| Loan-to-Cost (LTC) | Up to 90% of construction + acquisition costs |
| Loan-to-Value (LTV) | 70-75% of appraised "as complete" value |
| Equity requirement | 20-30% typically required |
| Reserves | 6 months of interest payments recommended |
| Loan term | 12-24 months (interest-only during construction) |
| Project type | Spec homes, build-to-rent, subdivisions, custom homes |
Did you know: Ground-up construction loans can fund up to 90% of your total project costs, including land purchase and construction expenses.
Why Ground-Up Construction Loans Instead of Traditional Financing?
Traditional banks often don't offer programs designed for ground-up construction projects that require comprehensive funding from land purchase through completion. They typically focus on completed properties or require separate financing for land and construction, which can create complexity and higher costs for builders and developers.
Your first bank just doesn't offer the right program for you.
Think of it like when a customer asks for something your business doesn't offer. Maybe they want delivery but you only do pickup, or they need a service you don't provide. You're not saying no because there's anything wrong with them—you just don't offer that particular service. Same with mortgages. Traditional banks work great for most people, but they don't offer the programs that builders and developers need for comprehensive project financing.
Traditional banks use conventional underwriting that works well for completed properties but struggles with construction projects requiring staged funding, milestone-based disbursements, and different payment structures during the building phase. Your construction strategy may involve comprehensive project funding, but conventional programs can't accommodate the unique needs of ground-up construction.
Ground-up construction loans are perfect for experienced builders who want comprehensive project funding, developers seeking high leverage for new projects, investors building spec homes or rental properties, or anyone needing to fund entire construction projects from start to finish.
This isn't about finding loopholes or gaming the system. It's about working with lenders who understand how construction financing actually works. Ground-up construction loans are offered by lenders who work with builders and developers every day. They look at your project's viability, construction timeline, builder experience, and exit strategy—the factors that actually matter for successful construction projects—rather than just completed property qualifications.
For a no obligation conversation about your mortgage, contact Chad Ellis (#2577725) of Rain City Capital at 469-249-3415.
Example Use Cases and Scenarios
Spec Home Builder
Jordan purchases a lot and uses construction financing to build a 4-bedroom home with draws released as the project progresses.
Build-to-Rent Developer
Lisa secures financing to construct three new rental houses, then refinances into long-term DSCR loans once stabilized.
Small Subdivision Builder
A developer acquires five parcels and uses construction financing for land prep and phased construction of a townhouse community.
Custom Home Builder
An experienced builder funds construction of high-end custom homes using draw-based financing with milestone disbursements.
| Scenario | Description |
|---|---|
| Spec Home Builder | Jordan purchases a lot and uses construction financing to build a 4-bedroom home with draws released as the project progresses. |
| Build-to-Rent Developer | Lisa secures financing to construct three new rental houses, then refinances into long-term DSCR loans once stabilized. |
| Small Subdivision Builder | A developer acquires five parcels and uses construction financing for land prep and phased construction of a townhouse community. |
| Custom Home Builder | An experienced builder funds construction of high-end custom homes using draw-based financing with milestone disbursements. |
Did you know: Some lenders offer construction-to-permanent conversion, allowing your loan to convert into a 30-year mortgage once construction is complete.
How Ground-Up Construction Loans Work
Ground-up construction loans follow a specialized project-based process designed specifically for new construction projects. The key differences are comprehensive funding and staged disbursement—these loans cover the entire project lifecycle with funding released as construction progresses.
The Ground-Up Construction Loan Process
- 1. Project Planning & Budget Analysis
- The process begins with comprehensive project planning where lenders examine your construction budget, timeline, permits, and builder experience, followed by project viability assessment including market analysis, comparable sales, and construction cost validation. Lenders then calculate the maximum loan amount based on up to 90% of construction and acquisition costs, ensuring the project has sufficient funding to reach completion.
- 2. Builder Qualification & Experience Review
- Unlike conventional loans, ground-up construction underwriting focuses heavily on builder experience and project management capabilities. This includes reviewing your construction track record with 2-3 prior completed projects, builder resume and qualifications, construction contracts and subcontractor relationships, and project timeline and milestone planning. The underwriting process prioritizes your ability to complete the project successfully.
- 3. Construction-Focused Underwriting
- Experienced underwriters review your construction project using project-focused analysis instead of traditional property evaluation. They assess the project's viability through budget analysis and cost validation, construction timeline through milestone planning and contractor relationships, and exit strategy through market analysis and comparable sales. The underwriting process includes the same risk assessment as conventional loans, just with a focus on construction project success.
- 4. Staged Funding & Project Management
- Once approved, funding is released in stages as construction progresses: foundation, framing, roofing, and completion. Each draw requires inspection and approval before funds are released, ensuring the project stays on track and within budget. The loan structure includes interest-only payments during construction, with full repayment or conversion to permanent financing upon completion.
Ground-Up Construction Loans vs Conventional Mortgages
Understanding the key differences between ground-up construction loans and conventional mortgages can help you choose the right financing option for your situation.
| Feature | Ground-Up Construction Loans | Conventional Loan |
|---|---|---|
| Who Qualifies | Experienced builders, developers, investors with proven construction track records, and borrowers seeking to fund new residential projects from the ground up | W-2 employees, salaried workers |
| Income Documentation | Construction-focused underwriting focusing on project viability, builder experience, and construction budget rather than traditional income verification | W-2s, pay stubs, tax returns |
| Minimum Credit Score | 680 FICO score minimum | 620 |
| Minimum Down Payment | 20-30% equity required | 3% |
| Private Mortgage Insurance | Not applicable | Private mortgage insurance (PMI) |
| Occupancy Type | Investment properties and new construction | Primary residences, second homes, investment properties |
| Property Type | New residential construction, spec homes, build-to-rent projects, small subdivisions | Single-family homes, condos, townhouses, 2-4 unit properties |
| Interest Rates | Higher than traditional rates due to construction risk | Market rates |
| Processing Time | 4-6 weeks | 30-45 days |
| Closing Costs | Construction loan fees, appraisal fees, permit costs, builder verification | 2-5% of loan amount |
| Prepayment Penalty | Varies by lender | None |
| Reserves Required | 6 months of interest payments recommended | 2-6 months of PITI |
| Debt-to-Income Ratio | Not considered | Up to 43% |
| Maximum Loan Amount | 90% LTC maximum | $806,500 |
| Appraisal Requirements | Construction appraisal with "as complete" value assessment | Standard appraisal required |
| Occupancy Requirements | Investment property only | Primary residence for 12 months |
| Non-Warrantable Condos | Eligible for new construction | Not eligible |
| Manufactured Homes | Eligible for new construction | Eligible if on permanent foundation |
| ADU Properties | Eligible for new construction | Not eligible |
| Barndominiums | Eligible for new construction | Not eligible |
| Tiny Homes | Eligible for new construction | Not eligible |
| Mixed-Use Properties | Eligible for residential portion | Not eligible |
| Rural Properties | Eligible | Eligible |
| Feature | Ground-Up Construction Loans | Conventional Loan |
|---|---|---|
| Who Qualifies | Experienced builders, developers, investors with proven construction track records, and borrowers seeking to fund new residential projects from the ground up | W-2 employees, salaried workers |
| Income Documentation | Construction-focused underwriting focusing on project viability, builder experience, and construction budget rather than traditional income verification | W-2s, pay stubs, tax returns |
| Minimum Credit Score | 680 FICO score minimum | 620 |
| Minimum Down Payment | 20-30% equity required | 3% |
| Private Mortgage Insurance | Not applicable | Private mortgage insurance (PMI) |
| Occupancy Type | Investment properties and new construction | Primary residences, second homes, investment properties |
| Property Type | New residential construction, spec homes, build-to-rent projects, small subdivisions | Single-family homes, condos, townhouses, 2-4 unit properties |
| Interest Rates | Higher than traditional rates due to construction risk | Market rates |
| Processing Time | 4-6 weeks | 30-45 days |
| Closing Costs | Construction loan fees, appraisal fees, permit costs, builder verification | 2-5% of loan amount |
| Prepayment Penalty | Varies by lender | None |
| Reserves Required | 6 months of interest payments recommended | 2-6 months of PITI |
| Debt-to-Income Ratio | Not considered | Up to 43% |
| Maximum Loan Amount | 90% LTC maximum | $806,500 |
| Appraisal Requirements | Construction appraisal with "as complete" value assessment | Standard appraisal required |
| Occupancy Requirements | Investment property only | Primary residence for 12 months |
| Non-Warrantable Condos | Eligible for new construction | Not eligible |
| Manufactured Homes | Eligible for new construction | Eligible if on permanent foundation |
| ADU Properties | Eligible for new construction | Not eligible |
| Barndominiums | Eligible for new construction | Not eligible |
| Tiny Homes | Eligible for new construction | Not eligible |
| Mixed-Use Properties | Eligible for residential portion | Not eligible |
| Rural Properties | Eligible | Eligible |
Real-World Example: Ground-Up Construction Loans
The Spec Home Builder's Success Story
Jordan, a small but experienced builder, had successfully completed 5 residential projects over the past 3 years and was ready to scale his operations. He identified a prime lot in an emerging neighborhood that was perfect for a 4-bedroom spec home, but the project required comprehensive funding to cover land acquisition and full construction costs.
When Jordan approached his traditional bank about financing the project, he faced the familiar roadblock. Despite having excellent credit at 720 and a proven track record, the conventional lender could only offer land financing or separate construction loans. This would mean multiple loan applications, multiple closings, and significantly higher costs that would eat into his profit margins.
Frustrated but determined to move forward with his project, Jordan discovered ground-up construction loans through another lender. This specialized program would fund the entire project from land purchase through completion, with draws released as construction progressed. By analyzing his project budget of $450,000 and his available equity, the lender calculated he could qualify for a $405,000 loan at 90% LTC.
The process involved comprehensive project underwriting: he provided construction budget, timeline, building permits, and his builder resume. The underwriting focused on his construction experience and project viability rather than just his personal financial situation. Within 5 weeks, he received approval and closed on the construction loan.
The benefits were immediate: comprehensive project funding, staged disbursements matching construction progress, and interest-only payments during construction. As Jordan completed each phase, draws were released to fund the next stage. Once the home was completed, he sold it for $520,000, repaid the construction loan, and pocketed a substantial profit. This story illustrates how ground-up construction loans can enable builders to fund entire projects efficiently and profitably.
Did you know: Draw-based disbursement ensures your project stays on track and within budget by releasing funds only as construction milestones are completed.
Benefits & Considerations
Ground-up construction loans offer significant advantages for builders and developers, but they also come with important considerations to weigh.
Key Benefits: Comprehensive funding, draw-based disbursement, high leverage, construction-to-permanent options
- Comprehensive funding
- Cover the entire build process from land purchase through completion, including materials, labor, permits, and other construction costs in one loan program.
- Draw-based disbursement
- Money is released in stages (foundation, framing, roofing, completion) to match construction milestones, ensuring efficient use of funds and project progress tracking.
- Interest-only payments
- Lower monthly costs during construction with interest-only payments, reducing cash flow pressure while the project is underway and not generating income.
- High leverage options
- Up to 90% loan-to-cost (LTC) and 75% loan-to-value (LTV) on the completed property, maximizing your purchasing power and project funding.
- Construction-to-permanent conversion
- Some lenders allow the loan to convert into a 30-year mortgage once construction is complete, saving time and fees compared to separate loans.
- Project flexibility
- Support for spec homes, small subdivisions, build-to-rent projects, and custom homes, with terms and structures designed for different construction strategies.
Important Considerations: Builder experience requirements, construction risks, exit strategy dependency, market sensitivity
- Builder experience requirements
- Often requires 2-3 prior completed projects with proven builder/developer history. Newer developers may need stronger equity positions or more experienced general contractors.
- Construction risks
- Market downturns, construction delays, cost overruns, and project complications can create repayment challenges. Adequate reserves and contingency funds are essential.
- Exit strategy dependency
- Lenders expect repayment via sale, refinance, or permanent financing after completion. The success of your exit strategy is critical for loan repayment.
- Market sensitivity
- Construction projects are sensitive to market conditions, interest rate changes, and economic factors that can affect both construction costs and final property values.
- Timeline management
- Construction delays can extend loan terms and increase costs. Realistic timelines, proper project management, and contingency planning are essential for success.
- Higher costs
- Interest rates are typically higher than traditional mortgages due to construction risk, and additional fees for inspections, draws, and project management may apply.
Frequently Asked Questions About Ground-Up Construction Loans
Get answers to the most common questions about ground-up construction loans. Whether you're wondering about qualification requirements, documentation needs, or how the process works, we've covered the essential information below.
What are ground-up construction loans?
How do ground-up construction loans work?
Who qualifies for ground-up construction loans?
What are the typical requirements?
How much can I borrow?
What credit score do I need?
How do draw-based disbursements work?
What are the loan terms?
What documentation do I need?
What types of projects are eligible?
How do I repay the construction loan?
What are the risks of construction loans?
Can I convert to permanent financing?
For a no obligation conversation about your mortgage, contact Chad Ellis (#2577725) of Rain City Capital at 469-249-3415.
Chad Ellis
Loan Officer at Rain City Capital
Chad Ellis Customer Reviews
Read verified customer reviews for Chad Ellis at Rain City Capital. This is real feedback from real borrowers who used Chad Ellis and their colleagues for a mortgage loan.
"I had the pleasure of working with Carolina on my recent real estate purchase, and I couldn't be happier with the experience. From start to finish, she was amazing—extremely responsive, knowledgeable, and always available to answer my questions. Carolina made the loan process smooth and stress-free, keeping me updated every step of the way. Her professionalism and dedication truly stood out, and I felt supported throughout the entire transaction. I highly recommend Carolina to anyone in need of a reliable and attentive lender."
"Julian is one of the best in the business. We've worked with him on multiple deals, and he consistently delivers, always funding on time and making the process seamless. He's professional, responsive, and communicates clearly every step of the way. If you're looking to close your property on time and work with someone you can rely on, I highly recommend working with Julian. It's always a pleasure doing business with him."
"Team Brosy (Alex & Josh) at rain city capital are one of my favorite lenders i work with. they are very quick on turn around to getting funding, fastest i've done was 7 days with them and they worked super hard to getting my shoreline flip funded last month. Their rates im very happy with. They're very communicative as well. Thank you guys! the photo attached is a previous deal they funded for me"
Spec Home Builder
Jordan purchases a lot and uses construction financing to build a 4-bedroom home with draws released as the project progresses.
Build-to-Rent Developer
Lisa secures financing to construct three new rental houses, then refinances into long-term DSCR loans once stabilized.
Small Subdivision Builder
A developer acquires five parcels and uses construction financing for land prep and phased construction of a townhouse community.
Custom Home Builder
An experienced builder funds construction of high-end custom homes using draw-based financing with milestone disbursements.
| Scenario | Description |
|---|---|
| Spec Home Builder | Jordan purchases a lot and uses construction financing to build a 4-bedroom home with draws released as the project progresses. |
| Build-to-Rent Developer | Lisa secures financing to construct three new rental houses, then refinances into long-term DSCR loans once stabilized. |
| Small Subdivision Builder | A developer acquires five parcels and uses construction financing for land prep and phased construction of a townhouse community. |
| Custom Home Builder | An experienced builder funds construction of high-end custom homes using draw-based financing with milestone disbursements. |
Similar Mortgage Programs to Ground-Up Construction Loans
If ground-up construction loans are not the right fit, these alternative programs might work better for your situation. Each has different requirements and lenders who specialize in helping borrowers with specific challenges get approved for mortgages.
Bridge Loans
Bridge loans provide fast, short-term financing for real estate investors needing quick acquisition funds. Close in 5-15 days with flexible terms and asset-based underwriting.
Construction-to-Permanent Loans
Build your dream home with a single loan that covers construction and converts to permanent financing. Perfect for custom home builders and those wanting to build from the ground up.
DSCR Loans
Debt Service Coverage Ratio loans for real estate investors. Perfect for purchasing rental properties based on rental income rather than personal income.
Important Compliance Information
Disclaimer: This information is for educational purposes only. AnotherLender.com is not a lender and does not make loans. We connect borrowers with licensed mortgage professionals. All loan approvals are subject to lender underwriting guidelines and individual qualification. Rates and terms may vary. Consult with a qualified mortgage professional for personalized advice.