Ground-Up Construction Loans for Real Estate Investors
Finance your next new build from the ground up. We shop your deal across 50+ lenders to find the best construction loan rates, highest leverage, and fastest close for spec homes, multifamily, and custom builds nationwide.
No credit pull. No commitment. Takes 2 minutes.
What Is a Ground-Up Construction Loan?
A ground-up construction loan is a short-term financing product designed to fund the building of a brand-new structure on a vacant lot or a lot where an existing structure will be demolished. Unlike a traditional mortgage that finances an already-built property, construction loans provide capital in stages as the building is erected, from foundation to certificate of occupancy.
Ground-up construction financing is fundamentally different from renovation or rehab loans. Renovation loans fund improvements to an existing structure, while construction loans fund an entirely new build. The underwriting process is also different: lenders evaluate your construction budget, architectural plans, permits, contractor qualifications, and the projected after-built value of the finished property rather than the current condition of a standing building.
Construction loans are also distinct from permanent mortgages. A permanent mortgage is a long-term loan (typically 30 years) on a completed property. A construction loan is short-term, usually 12 to 24 months, and is intended to be paid off once the build is complete, either by refinancing into a permanent loan or by selling the finished property. Some lenders offer construction-to-permanent programs that roll the construction loan directly into a long-term mortgage, saving borrowers the cost of a second closing.
How Construction Loans Work
Construction loans operate on a draw schedule rather than a single lump-sum disbursement. When you close on a construction loan, the lender commits the total loan amount but does not release all of the funds at once. Instead, the money is held in escrow and released in a series of draws that correspond to construction milestones.
Before each draw is released, the lender orders a third-party inspection to confirm that the work for that phase has been completed satisfactorily and in accordance with the approved plans and budget. Once the inspector signs off, the lender wires the draw amount to the borrower (or directly to the general contractor, depending on the lender). This process protects both the borrower and the lender by ensuring funds are only released for work that has actually been completed.
During the construction period, most lenders charge interest only on the funds that have been disbursed, not on the total committed loan amount. Many construction loans also include an interest reserve, which is a portion of the loan set aside to cover interest payments during construction. This means you may not need to make monthly out-of-pocket payments while the property is being built, as the interest is paid from the reserve. The interest reserve is built into the total loan amount at closing.
At the end of the construction period, the full loan balance becomes due. Your exit strategy is typically to sell the completed property and pay off the loan from the proceeds, or to refinance into a long-term permanent mortgage such as a DSCR loan, conventional loan, or portfolio loan.
Key Features
Every construction loan is different. Below are the typical ranges we see across our lender network. Your specific terms will depend on your project, experience, and creditworthiness.
Loan Amounts
$150K – $5M+
Loan-to-Cost (LTC)
Up to 85% of total cost
Loan-to-Value (LTV)
Up to 70% of completed value
Loan Terms
12 – 24 months
Draw Structure
Monthly or milestone-based
Interest Reserve
Available (built into loan)
Time to Close
21 – 30 days
Property Types
SFR, townhome, multifamily, mixed-use
Who Construction Loans Are For
Ground-up construction loans serve a wide range of real estate professionals and investors. If any of the following describes your situation, a construction loan may be the right financing tool for your project.
Spec Home Builders
You build single-family homes or townhomes on speculation, intending to sell the finished product to an end buyer. You need financing to cover land acquisition and construction costs while the property is being built.
Build-to-Rent Investors
You want to construct a new property specifically to hold as a long-term rental. A construction loan funds the build, and you refinance into a DSCR loan or permanent mortgage once the property is complete and leased.
Multifamily Developers
You are building a duplex, triplex, fourplex, or small apartment building. Construction loans for multifamily projects can cover both the building costs and soft costs like architectural fees and permits.
General Contractors & Builders
You are a licensed builder or GC who wants to act as the developer on your own projects. Many construction lenders allow borrowers who are also the general contractor, provided you have a track record of completed builds.
Land Owners Ready to Build
You already own a vacant lot and are ready to break ground. Your land equity can often serve as part or all of your required down payment, reducing or eliminating out-of-pocket costs at closing.
Understanding the Draw Schedule
The draw schedule is the backbone of every construction loan. It determines when funds are released, how much is disbursed at each stage, and what conditions must be met before the lender authorizes the next payment. Understanding how draws work is critical to keeping your project on track and avoiding cash flow gaps.
Most lenders structure draws around five major construction milestones. The exact percentages vary by lender and project, but here is a typical draw schedule for a single-family new construction project:
Foundation
Site preparation, excavation, footings, and foundation pour. Typically represents 10–15% of the total construction budget.
Framing
Structural framing including walls, roof trusses, sheathing, and windows. Usually the largest single draw at 20–25% of the budget.
Rough-In
Plumbing, electrical, and HVAC rough-in before walls are closed. Inspections from both the lender and local municipality are required at this stage.
Dryout
Insulation, drywall, and interior/exterior weather barrier. The property is now sealed from the elements and interior finish work can begin.
Final Finish
Flooring, cabinetry, fixtures, paint, appliances, landscaping, and final grading. The last draw is released after certificate of occupancy is issued.
Before each draw, the lender sends a third-party inspector to the job site. The inspector verifies that the work listed in the draw request has been completed, that the quality meets acceptable standards, and that the project is progressing according to the approved plans and timeline. Once the inspection report is submitted and approved, the lender releases the draw, typically within 3 to 5 business days. Some lenders offer expedited draw processing for experienced borrowers with a strong track record.
Qualification Requirements
Construction loans have more moving parts than a standard investment property loan. Lenders need to evaluate not just the borrower and the property, but the entire construction plan. Here are the typical requirements you should be prepared for:
Builder Experience
Most lenders want to see at least 2 to 3 completed ground-up projects in the last 36 months. First-time builders may qualify with a higher down payment and a qualified general contractor.
Credit Score
Minimum credit scores typically start at 660 for construction loans, though some lenders require 680 or higher. Higher credit scores unlock better rates and higher leverage.
Equity / Land Contribution
Borrowers generally need to contribute 15% to 30% of the total project cost. If you own the land free and clear, its appraised value can count toward your equity requirement.
Plans & Permits
Approved architectural plans, a detailed construction budget (line-item breakdown), and all required building permits must be in place before closing. Some lenders allow closing with permits pending.
Licensed General Contractor
The project must be managed by a licensed, insured general contractor. Some lenders allow the borrower to act as the GC if they hold the appropriate licenses and have documented experience.
Detailed Budget Review
Lenders will review your line-item construction budget to ensure costs are reasonable and in line with local market rates. Contingency reserves of 5% to 10% are typically required.
Sample Deal: Spec Home in Charlotte, NC
Ryan is a builder in Charlotte, NC. He has purchased a vacant lot for $120,000 and plans to build a 2,200 sq ft single-family home with a projected after-built value of $475,000. Ryan has completed six ground-up builds in the last two years and has a 720 credit score.
Lot Purchase Price
$120,000
Construction Budget
$230,000
Total Project Cost
$350,000
After-Built Value (ABV)
$475,000
Loan Amount (85% LTC)
$297,500
Loan-to-Value (ABV)
62.6%
Borrower Equity (Cash to Close)
$52,500
Interest Rate
10.5%
Loan Term
18 months
Interest Reserve
Included in loan
How the deal works: Ryan brings $52,500 to closing, which represents his 15% equity contribution on the $350,000 total project cost. The lender finances 85% of the total cost ($297,500), which includes both the lot payoff and the full construction budget. An interest reserve is built into the loan so Ryan does not need to make monthly interest payments out of pocket during the build.
Ryan's construction budget is divided into five draws. As he completes each milestone, the lender inspects the work and releases the next draw. After 7 months of construction, the home is complete. Ryan lists the property for $479,000, accepts an offer, and pays off the construction loan at the closing table. His total profit after all costs (loan interest, closing costs, realtor fees, and holding costs) is approximately $68,000.
Alternatively, if Ryan wanted to hold the property as a rental, he could refinance into a DSCR loan at 75% LTV ($356,250), pull out his original equity plus a portion of his profit, and cash-flow the property long-term.
This example is for illustrative purposes only. Actual rates, terms, and loan amounts vary by lender, borrower qualifications, and property details.
Construction Loan FAQs
How do construction loans work?
A construction loan provides short-term financing to cover the cost of building a new property from the ground up. Unlike a traditional mortgage where you receive the full loan amount at closing, construction loan funds are disbursed in stages called draws. Each draw is released after a lender-ordered inspection confirms the work for that phase is complete. You only pay interest on the funds that have been disbursed, not the full loan amount. Once construction is finished, you either refinance into a permanent loan or sell the property to pay off the construction loan.
What is a draw schedule?
A draw schedule is the plan that outlines when and how construction loan funds are released during the building process. Draws are typically tied to construction milestones such as foundation completion, framing, rough-in of mechanical systems, dryout (drywall and insulation), and final finish. Before each draw is released, the lender sends a third-party inspector to verify the work has been completed to an acceptable standard. Draw schedules can be structured as monthly draws or milestone-based draws, depending on the lender and the project.
What is the difference between a construction loan and a permanent loan?
A construction loan is a short-term loan (typically 12 to 24 months) used to finance the building of a new property. Funds are disbursed in stages as construction progresses. A permanent loan, also called a takeout loan, is a long-term mortgage (typically 30 years) used to pay off the construction loan after the building is complete and the property has a certificate of occupancy. Some lenders offer construction-to-permanent loans that automatically convert from a construction loan into a permanent mortgage once the build is finished, saving you the cost of a second closing.
What are current construction loan interest rates?
Ground-up construction loan rates typically range from 9% to 13%, depending on the borrower experience, loan-to-cost ratio, property type, and location. Rates are generally higher than permanent mortgage rates because construction lending carries more risk for the lender. Because Sinai Capital shops your deal across 50+ lender partners, we can help you find the most competitive rate available for your specific project. Fill out our quick form for a personalized rate quote.
How much equity do I need for a construction loan?
Most ground-up construction lenders require the borrower to contribute 15% to 30% of the total project cost as equity. If you already own the land free and clear, the land value can often serve as your equity contribution. For example, if your total project cost is $500,000 and you own a lot worth $120,000, that lot value may satisfy the equity requirement. Some lenders will also allow a cross-collateralization strategy where equity in another property is used to reduce or eliminate out-of-pocket costs.
Can I build spec homes with a construction loan?
Yes. Spec home construction loans are one of the most common uses of ground-up construction financing. Spec homes are properties built without a specific buyer in mind, intended to be sold on the open market upon completion. Lenders evaluate spec home deals based on the projected after-built value, comparable sales in the area, the borrower construction experience, and the local market demand. Experienced spec home builders with a track record of completed projects typically receive the best rates and highest leverage.
What happens when the construction loan matures?
When a construction loan reaches its maturity date, the full balance becomes due. At that point, borrowers typically either sell the completed property and pay off the loan from the sale proceeds, or refinance into a permanent long-term mortgage such as a DSCR loan or conventional loan. If the project is not yet complete, many lenders offer extension options (usually 3 to 6 months) for an additional fee. It is important to plan your exit strategy before taking out a construction loan so you have a clear path to repayment.
Ready to Finance Your Next Build?
Tell us about your project and a construction loan specialist will call you within 5 minutes with your best options from 50+ lenders. No credit pull. No obligation.
Get Pre-Qualified →Takes 2 minutes. We'll reach out right away.
Related Loan Products
Bridge Loans →
Short-term financing for acquisitions, value-add projects, and time-sensitive deals. Close in as few as 7 days.
Fix-and-Flip Loans →
Rehab financing for investors who buy, renovate, and sell. Up to 90% of purchase price and 100% of renovation costs.
Commercial Loans →
Long-term financing for stabilized commercial properties including office, retail, industrial, and multifamily.