Ground-up loans are underwritten on a project that does not exist yet. The more of that project you can put on paper before you apply, the faster and cleaner the approval.
In short: Before applying for a ground-up construction loan, investors typically need the land under contract or owned, approved or near-approved plans and permits, a detailed hard and soft cost budget, a licensed builder with a contract, and a clear exit plan. Our programs finance up to 85% of total project cost (loan-to-cost), with funds released in draws as work is completed. Terms are custom to the project.
Use this list to see how ready your project is. Items marked as required are needed for a term sheet on most programs; the rest are needed before closing.
| Item | When it is needed |
|---|---|
| Land contract or deed | Required to start |
| Architectural plans and site plan | Required to start, final set by closing |
| Line-item construction budget | Required to start |
| Builder resume and license | Required to start |
| Signed construction contract | Before closing |
| Building permits | Before closing or first draw, varies by program |
| Survey, soils or environmental reports | When the site calls for them |
| Exit plan (sale or refinance) | Required to start |
Total project cost is land plus hard costs plus soft costs. Hard costs are the physical build. Soft costs include plans, permits, engineering, insurance, interest reserves and fees.
Here is an example. Land costs $100,000, hard costs are $400,000 and soft costs are $50,000, for a total of $550,000. At 85% loan-to-cost, the maximum loan would be $467,500, and the investor brings $82,500 of equity. Most programs also cap the loan against the as-completed value, so both limits have to fit.
A good construction budget follows the order of the build: site work, foundation, framing, roofing, mechanicals, drywall, finishes and landscaping. Each line should match the builder's contract.
Include a contingency, commonly 5% to 10% of hard costs. Budgets with no contingency read as optimistic, and optimistic budgets get haircut.
Lenders review the general contractor almost like a second borrower. They want a license, insurance and a list of similar completed projects.
If you are building yourself, expect closer scrutiny. Many programs want to see prior ground-up builds before they treat the borrower as the builder.
Some programs will issue terms with plans in final review and close once permits are issued. Others want permits in hand before they order the valuation.
Ask early how your program handles this. If permits are months away, it may make sense to buy the land first and close the construction loan later.
The project is only half the file. Underwriting also reviews your credit, liquidity and track record with similar builds.
Expect to show cash for your share of the project cost, closing costs and reserves. Programs vary, but many want to see interest payments covered for part of the build, either in your accounts or through an interest reserve in the loan. Borrowing through an LLC is common, with a personal guarantee.
Construction funds are released in draws as work is completed and inspected. A draw schedule tied to milestones keeps the builder paid and the project moving.
Your exit should be set from the start. Build-to-sell projects lean on comparable new construction sales. Build-to-rent projects often refinance into a DSCR loan once a certificate of occupancy is issued and the property is leased. When your package is ready, our financing team can bring you 2–3 options to compare.
Typically land, plans, a detailed budget, a licensed builder with a contract, permits or a permit timeline, and an exit plan. Lenders also review your credit, liquidity and building experience.
Our programs finance up to 85% of total project cost, so plan on at least 15% of cost as equity. Land you already own can often count toward that equity.
Not always to apply, but usually before closing or the first draw. Programs differ, so confirm the timing with your loan officer.
Some programs allow it if you have a documented history of completed builds. First-time builders usually need a licensed general contractor.
In draws. After each phase of work, an inspection confirms progress and funds are released for that completed work.
It depends on how complete your package is. Files with final plans, a signed builder contract and a detailed budget move much faster than files still waiting on design or permits.
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