Washington's growth management rules, middle housing law and high construction costs shape residential building from Seattle to Spokane. The right construction lender understands the excise tax, impact fees and sales tax that apply to new homes in Washington.
In short: LendingStreet finances ground-up construction for real estate investors in Washington on 1-8 unit residential projects, including spec homes, build-to-rent homes and infill duplexes, sized on loan-to-cost with funds released through inspected draws. The best lender for your build is the one whose LTC, draw speed, interest reserve and experience requirements fit your plans, budget and builder. In Washington, also ask how the lender handles sales tax on construction, impact fees and the state's middle housing law.
Two Washington construction offers can look similar on the first page and work very differently once the foundation is poured. Compare the structure of the loan, not just its price.
These are the items worth asking every lender about before you sign.
Also ask what the lender needs before the first draw, such as builder's risk insurance, a recorded deed and an approved budget, so nothing holds up the start of work.
| What to compare | Why it matters | What to ask |
|---|---|---|
| Loan-to-cost (LTC) | Sets how much cash you bring | What share of land, hard and soft costs is covered? |
| Land and equity | Owned land may count toward equity on some programs | How is land I already own treated? |
| Draw process | Slow draws stall subcontractors | Who inspects, and how fast are draws funded? |
| Sales tax on construction | Applies to labor and materials | Do the bids include sales tax? |
| Interest reserve | Covers payments during the build | Is there a reserve, and how is it sized? |
| Experience rules | Decides whether you qualify | What track record or general contractor is required? |
| Term and extensions | Weather and permits cause delays | What happens if the build runs long? |
In the Seattle area, investors build infill townhomes, duplexes and small multi-unit buildings, often with accessory dwelling units. Tacoma, Everett, Olympia and Vancouver have suburban growth, and Bellingham has university demand.
Spokane and the Tri-Cities of Kennewick, Pasco and Richland have lower land costs. A 2023 state law requires many cities to allow middle housing types, such as duplexes and fourplexes, on residential lots.
Washington cities plan under the Growth Management Act, with urban growth areas that limit land at the edges of metros. Permit timelines in Seattle and other large cities can be long on infill.
Contractors must register with the Department of Labor and Industries and carry a bond. Seattle also has environmentally critical area rules for steep slopes, landslide areas and wetlands.
Seismic design applies across western Washington, and steep or landslide-prone lots in Seattle and Tacoma can add geotechnical work. Spokane and eastern Washington have snow loads.
Wildfire risk affects central and eastern Washington, which can affect insurance.
Washington's energy code is among the stricter ones in the country and requires efficient heating and other energy measures in new homes, which affects the budget. Confirm current requirements with your builder.
This example is illustrative and not a quote. An investor plans a Tacoma-area duplex. Land costs $200,000, hard costs are $620,000 and soft costs, including plans, permits and fees, are $80,000, for a total of $900,000. At a sample 75% loan-to-cost, the loan is $675,000 and the investor brings $225,000.
If draws average about half the loan over a 12-month build, interest comes to about $35,400. On completion the property appraises at $1,000,000 and rents for $5,850 a month. A DSCR loan sized to pay off the $675,000 construction balance works out to about 68% of value. On a 30-year term, principal and interest is about $4,605; with $900 a month in taxes and insurance, the payment is about $5,505 and DSCR is about 1.06x, above the 1.0x standard minimum.
| Item | Amount |
|---|---|
| Land | $200,000 |
| Hard costs | $620,000 |
| Soft costs (plans, permits, fees) | $80,000 |
| Total project cost | $900,000 |
| Loan at 75% LTC | $675,000 |
| Equity from investor | $225,000 |
| Estimated interest during build | About $35,400 |
| Completed value | $1,000,000 |
| DSCR loan to pay off construction | $675,000 |
| Monthly payment (P&I, taxes, insurance) | About $5,505 |
| DSCR at $5,850 rent | About 1.06x |
Construction funds are not handed over at closing. After the land is funded, the lender releases money in stages as work is completed and inspected, usually at milestones such as foundation, framing, dry-in, mechanicals and completion. Our draw schedule calculator shows how a budget breaks into draws.
Interest is usually charged only on the amount drawn. Some loans include an interest reserve, money set aside in the loan to cover monthly interest during the build, which protects your cash but raises the loan amount. Western Washington's wet winters can slow site work, while eastern Washington winters can pause foundations.
Washington charges a real estate excise tax on sales at graduated rates, usually paid by the seller, so it hits on the sale of a spec home. Retail sales tax applies to construction labor and materials, so make sure bids include it.
Washington has no state income tax, and impact fees for schools, parks and transportation are common on new homes.
Lenders look at three things: the plans, the budget and the people building it. Plans and permits show the project is approved, the budget shows it is priced correctly, and the builder's experience shows it can be finished.
Without plans or permits, or without either a build track record or an experienced general contractor, most projects will not qualify. Buildings of 9 or more units are commercial and covered on our commercial page.
Every construction loan ends with a sale or a refinance. For a sale, budget for selling costs and a cushion on price and time. For a refinance, confirm that the expected rent covers the new payment at the 1.0x standard minimum, using realistic taxes and insurance.
Our investor loans are business-purpose loans on non-owner-occupied property, and we review Washington spec homes, build-to-rent homes and small infill buildings of up to eight units. Use the form below to get a quote, or call (877) 298-1001.
We will review the budget, confirm sizing on loan-to-cost and walk through the draw schedule before closing.
Yes. Retail sales tax applies to construction labor and materials, so it belongs in your budget.
The real estate excise tax on sales, charged at graduated rates and usually paid by the seller.
A 2023 state law requires many cities to allow middle housing types on residential lots. Check local rules first.
Money set aside in the loan to pay interest during construction, so you do not pay it monthly from your own cash. It increases the loan amount.
That depends on the loan-to-cost the lender offers for your project. The remainder is your equity, and land you already own may count toward it on some programs.
Lenders want a build track record or an experienced general contractor on the job. A borrower with no track record and no experienced contractor usually does not qualify.
Funds are released in draws after inspections confirm each stage of work. The land portion is usually funded at closing.
You either sell the property and pay off the loan, or refinance into a long-term DSCR rental loan that qualifies on the property's rent.
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