Most real estate investors have financed an existing property. A ground-up construction loan is a different animal — you’re borrowing against something that doesn’t exist yet, and the lender has to trust that you can build it on time, on budget, and with a clear exit. That changes how underwriting works, what documentation you need, and what it actually costs to carry the debt through completion.
Here’s what investors and developers need to know before approaching a lender.
What you’ll learn:
- How the draw schedule works and what triggers each release
- What lenders actually scrutinize (beyond credit score)
- Current rates, points, and total financing costs in 2026
- How to qualify when you have limited construction experience
- What goes into a complete loan package
What Is a Ground-Up Construction Loan?
A ground-up construction loan is short-term financing — typically 12 to 24 months — that funds the purchase of land and the full cost of constructing a new building. Unlike a DSCR loan or a fix and flip loan, there’s no existing property to collateralize. The lender is underwriting the project’s completed future value against your ability to execute a build from scratch.
These loans are used for:
- Single-family spec homes built to sell
- 2–4 unit residential investment properties (duplex, triplex, fourplex)
- Townhome and small condo developments
- Ground-up commercial buildings and mixed-use projects
Once construction is complete, the borrower either sells the finished property and repays the loan, or refinances into a permanent product — typically a DSCR loan for rentals or conventional debt for a stabilized commercial asset. That exit is stated at application — lenders want to know the plan before they write the check.
How the Draw Schedule Works
The draw schedule is what makes construction lending different from every other real estate loan type. You don’t receive the full loan amount at closing. Funds are released in stages as construction milestones are completed and verified by a third-party inspector.
A typical ground-up project runs 5 to 7 draw stages:
| Stage | Milestone | Approx. % of Loan |
|---|---|---|
| Draw 1 | Land acquisition & site work | 10-15% |
| Draw 2 | Foundation | 10-15% |
| Draw 3 | Framing & roof | 20-25% |
| Draw 4 | Mechanicals (HVAC, plumbing, electrical) | 15-20% |
| Draw 5 | Insulation & drywall | 10-15% |
| Draw 6 | Finishes (cabinets, flooring, paint) | 10-15% |
| Draw 7 | Final completion & certificate of occupancy | 5-10% |
Before each draw is released, the lender dispatches an inspector to verify completion. From draw request to funded check, expect 3 to 7 business days.
The cash flow gap is real. Most general contractors expect payment within 30 days of completing their scope. Draw processing takes time. Ensure you have enough working capital to bridge that gap.
Interest typically accrues only on the drawn balance – also known as non-dutch interest. Early in the project, carrying costs are low. They increase as the loan balance grows toward final draw.
What Lenders Actually Underwrite
Experience. This is the first filter. Most construction lenders want to see at least 1 to 3 completed ground-up builds before approval. Some accept major gut rehab experience as a partial substitute. First-timers can sometimes get approved by bringing an experienced licensed GC whose resume carries the project.
Credit score. Most programs require a minimum FICO of 650 to 680. The best pricing starts at 720 and above.
Liquidity and reserves. Lenders typically want 6 to 12 months of projected interest payments in reserve, plus a construction contingency of 5 to 10% of hard costs. Construction projects encounter surprises — lenders need to see you can absorb them. For larger construction projects, the typical requirement is 10% post close liquidity and 100% net worth of the loan amount – meaning on a $10,000,000 construction loan, after bringing your down payment they’ll want to see $1,000,000 liquid and $10,000,000 in net worth. Heavier emphasis is put on the liquidity to ensure the project won’t stall if issues arise.
Exit strategy. Every construction loan underwriter asks: how does this loan get paid off? “Sell the house” works if your projections are grounded in real comparable sales. “Refinance into a DSCR loan” works if stabilized cash flow supports it. A vague exit gets you a denial or higher equity requirement. Bridge-to-perm financing is another common exit for larger projects.
The general contractor. Lenders evaluate your GC almost as carefully as they evaluate you. They want a licensed, insured contractor with 3 to 5 comparable completed projects in the past 2 to 3 years. Bring their license number, insurance certificates, and a project resume.
What Does a Ground-Up Construction Loan Cost?
Interest rates in 2026:
- Bank and institutional lenders: 7.0% to 9.5%
- Private lenders and debt funds: 9.5% to 13.0%
Rates are usually floating, tied to Prime or 30-day SOFR plus a spread. Most private construction loans in mid-2026 are pricing in the 10% to 12% range for a qualified borrower with solid experience.
Loan-to-cost (LTC). Most lenders fund 75% to 85% of total project costs — land plus hard costs plus soft costs. They also cap the loan at 65% to 75% of the completed appraised value. Both LTC and LTARV limits apply; you get the lower of the two.
Points and fees:
- Origination: 1.5 to 3 points (private), 0.5 to 1.5 points (bank)
- As-completed appraisal: $2,000 to $5,000
- Draw inspection fees: $150 to $350 per draw
- Extension fee if needed: .5 to 1% of loan amount, per extension
Total financing cost. On a typical 12-month single-family spec build, interest plus points plus fees runs 10% to 15% of the loan amount. Build that into your pro forma from day one.
Looking at a ground-up construction project? We structure these deals nationally, from single-family spec builds to small multifamily and townhome developments. Schedule a 15-minute call
Qualifying as a First-Time Builder
Getting a first ground-up construction loan is the hardest one. The experience requirements create a catch-22: you can’t get the loan without the track record, but you can’t build the track record without the loan.
Bring an experienced GC who will guarantee completion. Some lenders will approve a first-time developer if the GC has the relevant track record and agrees to be a co-borrower or guarantor.
Over-equitize. Put in 30% to 35% of total project costs instead of 20%. First builds with 35% equity get approved where 20% deals get declined.
Start smaller. A single-family spec home is a better first build than a 12-unit townhome project. Prove you can manage one on time and budget, and the next deal funds on better terms.
Partner with an experienced developer. A JV where an experienced developer provides their track record for lender purposes can get a first-timer funded when solo applications can’t.
What Goes Into Your Loan Package
- Architectural plans — stamped, permitted, or permit-ready drawings
- Line-item construction budget — every cost category broken out, not a lump sum
- Project timeline — month-by-month schedule from groundbreaking to certificate of occupancy
- GC bids — written bids from your general contractor and key subcontractors
- Comparable sales — 3 to 5 recent closed sales supporting your projected finished value
- Builder resume — GC license, insurance certificates, and project history
- Personal financial statement — liquidity, net worth, reserves
- Entity documents — LLC operating agreement and certificate of good standing
The as-completed appraisal estimates finished value from your plans and comp set. A weak comp set or optimistic projected value directly limits your loan amount.
Construction Loans vs. Fix and Flip Loans
| Ground-Up Construction | Fix & Flip | |
|---|---|---|
| Property type | Vacant lot or teardown | Existing structure |
| Loan term | 12–24 months | 6–18 months |
| Experience required | 1–3 builds, typically | Helpful, not required |
| Documentation | Full architectural plans | Scope of work |
| Closing speed | 21–45 days | 7–14 days |
| Financing costs | Higher (longer term) | Lower |
| Profit potential | Higher (20–30%) | Lower (10–20%) |
Construction is harder to finance and harder to execute — but the margin potential is meaningfully better. Many experienced investors run both: fix and flip as a cash flow play, ground-up construction as a wealth-building one.
From a Recent Deal
From a recent deal: I recently worked with an investor on a single family project in Hawaii where the biggest underwriting hurdle wasn’t credit or equity — it was the contractor resume. The investor had done extensive rehab projects but no ground-up builds. We solved it by qualifying his GC’s experience without requiring him to be a co-borrower, since the investor had roughly 35% equity invested in the project when he purchased the site for cash and obtained all the approvals. The lender funded at 65% LTC on a 14-month term, provided a full interest reserve to cover the monthly payments and put roughly $200K cash back in his pocket to start the first phase of construction.
Frequently Asked Questions
How long does a ground-up construction loan take to close?
Most close in 21 to 45 days from a complete application. The as-completed appraisal is the critical path — it requires stamped plans and takes 2 to 3 weeks. Have plans and budget finalized before you apply.
Can I use a construction loan to buy the land?
Yes. Many programs allow land acquisition to be folded into the construction loan at closing. If you already own the land free and clear, its equity counts toward your down payment.
What happens if my project goes over budget?
Cost overruns are the borrower’s responsibility. Lenders require a contingency reserve of 5 to 10% of hard costs. If the loan is exhausted before the project is complete, you’ll need emergency bridge financing or face a lender workout.
What credit score do I need?
Most programs require a minimum 650 to 680 FICO. Bank lenders with the best rates typically want 720 or above.
What’s the difference between a construction loan and a mini-perm?
A construction loan finances the build. A mini-perm bridges the gap after construction is complete but before the property has fully stabilized. Per the Mortgage Bankers Association’s 2026 forecast, total commercial originations are projected to reach $805 billion — a 27% increase — meaning capital for both construction and permanent takeout is active. Federal Reserve FRED data shows single-family housing starts at a 930,000 seasonally adjusted annual rate as of April 2026, reflecting continued demand for new inventory.
Ready to Finance Your Ground-Up Build?
We’re a commercial mortgage brokerage serving investors and developers nationally, with active lender relationships across ground-up construction, fix and flip, DSCR, and bridge programs. Send us your scenario — we’ll respond within one business day with realistic terms.
This article is for informational purposes only and does not constitute financial, legal, or tax advice. Loan terms, rates, and availability vary by borrower, property, and market conditions. Consult Willowbrook Capital for scenario-specific guidance.