A DSCR loan qualifies on the rental property's income instead of yours. That single fact…
Ground Up Construction Loans for Real Estate Investors
A ground-up construction loan is short-term financing that pays for building a property from a vacant lot (or a teardown) to a finished structure. It covers land, site work, materials, labor, and soft costs, disbursed in stages as the work gets done. When the building is complete, you pay it off by selling or by refinancing into a long-term loan.
That last part is the difference from a construction-to-permanent loan. A construction-to-perm loan is one closing that converts automatically into a 30-year mortgage when the house is done; it’s mostly a consumer product for people building a home they’ll live in. An investor ground-up loan is a standalone business-purpose loan. You close it, build, then separately close a DSCR loan (if you’re holding) or sell (if you’re not). Two closings, more flexibility, no owner-occupancy requirement.
Neil and I have built from the ground up for Beard Bros and run draws on our own projects. Here’s what the process actually looks like.
How real estate investors qualify
Construction lenders underwrite three things, in roughly this order: can you build it, can you exit it, and does the finished property support the loan.
Project experience
This is the gate. Most investor construction lenders want to see completed ground-up builds, commonly 1-3, or a track record of heavy rehabs comparable to new construction. If you haven’t built before, your general contractor’s experience can carry part of the weight, but you’ll see lower leverage and some lenders will decline outright. A few lenders run “first-time builder” programs with a licensed GC and tighter terms. Be honest about your count; lenders verify.
Exit strategy
The lender needs to know how they get paid back in 12-18 months. Two acceptable exits:
- Sale. Spec build. You’ll need comps supporting the as-completed value and a realistic absorption timeline.
- Refinance into a DSCR loan (build-to-rent). You’ll need market rent supporting a DSCR that qualifies at the takeout loan amount. Smart lenders underwrite the takeout at the same time; we do this on every build-to-rent file so there’s no surprise at completion.
Property and project performance
- As-completed appraisal. An appraiser values the finished project from the plans and specs. Leverage is based partly on this number.
- Budget and scope. Line-item budget, plans, and a signed GC contract. Lenders want to see a contingency, typically 5-10%.
- Permits and entitlements. Most lenders want approved permits in hand or imminent at closing. Unentitled land is a different (harder) loan.
- Credit and liquidity. Minimum scores generally in the 660-680 range, better tiers at 700+. Liquidity matters more here than in most products because you’re funding draws before reimbursement.
- Entity. Closed in an LLC with a personal guarantee, like other business-purpose loans.
How construction loan draws work, step by step
Construction loans don’t fund all at once. The lender holds the construction budget in a reserve and releases it in draws as work is completed and verified. You (or your GC) front the cost of each phase, then get reimbursed. Understanding this cash-flow rhythm is the single most important operational detail in a build.
- Closing. The loan funds the land purchase (or pays off the land if you already own it) and closing costs. The construction budget is set aside in a holdback, not wired to you.
- Build a phase. You and your GC complete a stage of work, for example foundation, framing, rough mechanicals, drywall, finishes. The draw schedule, agreed at closing, defines what each phase includes and what percentage of the budget it represents.
- Submit a draw request. You send the lender a draw request with invoices, lien waivers from subs and suppliers, and photos. Most lenders use a portal or a third-party draw administrator.
- Inspection. The lender sends an inspector (or uses a photo/video verification service) to confirm the work is done to the percentage claimed. Expect a fee per inspection.
- Disbursement. After inspection approval, the lender wires the draw, typically within 3-7 business days of the request. Some lenders fund the first draw at closing for site work; most require work in place first.
- Repeat through completion. A typical single-family build has 4-7 draws. The final draw is usually tied to a certificate of occupancy.
- Exit. Sell or close the DSCR takeout. The construction loan is paid off from the proceeds.
Interest-only payments during construction
Construction loans are interest-only, and the interest accrues only on the funds actually drawn, not the full loan amount. Your first payment after closing is on the land portion; it steps up as draws are funded. Some lenders set up an interest reserve inside the loan that pays the monthly interest for you during the build, so you have no out-of-pocket payment until payoff. That’s convenient but it increases the loan balance and reduces what’s left for construction, so size it carefully.
Draw-process mistakes that cost investors money: missing lien waivers (the number one delay), requesting a draw before the work is actually at the claimed percentage, changing scope without a lender-approved change order, and not having enough liquidity to carry two phases at once when an inspection slips. Keep 10% of the budget liquid beyond your required reserves.
Down payment and reserve requirements
Construction lenders talk in loan-to-cost (LTC), the loan as a percentage of total project cost (land + hard costs + soft costs), and cap that against a loan-to-ARV (after-repair or as-completed value). Your equity is the gap.
| Item | Typical 2026 range |
|---|---|
| Max loan-to-cost | 80-90% for experienced builders; 70-80% for lighter experience |
| Max loan-to-ARV | 65-75% |
| Land financing | Often up to 50-75% of land value; land you already own counts as equity |
| Your cash in | Commonly 10-25% of total cost, plus closing costs and interest carry |
| Reserves | 6-12 months of interest carry, plus a contingency; some lenders also want reserves for other financed properties |
| Term | 12-18 months, extensions available for a fee |
| Loan size | Roughly $150K to $3-5M on 1-4 unit and small multifamily |
Hypothetical cost-to-cash example (no rate or payment shown; not an offer):
Land $60,000. Hard costs $240,000. Soft costs and contingency $30,000. Total cost $330,000. As-completed value $440,000.
At 85% LTC: loan $280,500. Check against 70% of ARV: $308,000. LTC is the binding constraint, so the loan is $280,500.
Your equity in: $49,500 plus closing costs and interest carry until payoff.
Drop experience to a first build and LTC might fall to 75%: loan $247,500, your equity $82,500. Experience is worth cash.
Land $60,000. Hard costs $240,000. Soft costs and contingency $30,000. Total cost $330,000. As-completed value $440,000.
At 85% LTC: loan $280,500. Check against 70% of ARV: $308,000. LTC is the binding constraint, so the loan is $280,500.
Your equity in: $49,500 plus closing costs and interest carry until payoff.
Drop experience to a first build and LTC might fall to 75%: loan $247,500, your equity $82,500. Experience is worth cash.
For a deeper look at what drives the down payment number, see How Much Down Payment Is Needed for New Construction? And if you’re wondering whether DSCR can fund the build itself, the short answer is no; we covered it in Can You Use a DSCR Loan for Construction Financing?
Why investors use a broker for construction
Construction lenders are the least uniform corner of investor finance. Experience thresholds, LTC caps, draw administration, interest reserve handling, and appetite for build-to-rent versus spec all vary by lender, and turn times shift month to month. A broker with a full panel can match your experience level and exit to the lender that actually wants the project, line up the DSCR takeout at the same time, and tell you up front if you’re a “bank construction loan” candidate instead. That’s the read we give on every construction scenario.
Have a lot and a set of plans?
Send us the budget, the as-completed value, your build count, and your exit. We’ll tell you what leverage looks like and which lender fits.
Frequently asked questions
What is a ground-up construction loan?
A short-term, business-purpose loan that finances building a property from vacant land or a teardown through completion. It funds land, hard costs, and soft costs in stages (draws) as work is verified, carries interest-only payments on drawn funds, and is paid off by sale or by refinancing into a long-term loan like a DSCR. Unlike construction-to-permanent loans, it does not automatically convert to a mortgage.
How do I get a construction loan as a real estate investor?
Assemble a complete package: land contract or deed, plans and specs, line-item budget with contingency, signed GC contract and GC resume, permits or permit status, your build or heavy-rehab track record, entity docs, credit, and proof of liquidity. Define your exit (sale comps or rental DSCR). Then apply through a lender or broker that handles investor construction; experience and exit are what get you approved.
How does construction loan underwriting work?
Lenders evaluate builder experience, the exit strategy, and project economics. They order an as-completed appraisal from the plans, review the budget for feasibility and contingency, check permits, verify GC credentials, pull guarantor credit, and confirm reserves for interest carry. Leverage is set as the lesser of a loan-to-cost cap and a loan-to-ARV cap.
How do construction loan draws work?
The construction budget is held by the lender and released in stages. You complete a phase, submit a draw request with invoices, lien waivers, and photos, the lender inspects, and funds are wired, typically within 3-7 business days. A single-family build usually has 4-7 draws, with the last tied to the certificate of occupancy. Interest accrues only on funds drawn.
How much down payment do I need for a ground-up construction loan?
Typically 10-25% of total project cost, depending on experience and the lender’s loan-to-cost cap, plus closing costs and reserves for interest carry. Land you already own counts toward your equity. Experienced builders see higher leverage.
Can I get a ground-up construction loan with no building experience?
Sometimes, with a licensed, experienced GC and lower leverage. Many investor construction lenders require at least one completed build or comparable heavy rehab. First-time builders often do better starting with a local bank construction loan or partnering with an experienced builder on their first project.
Aspire Mortgage LLC · NMLS #2783873 · 254 N 114th St, Omaha, NE 68154 · Equal Housing Opportunity. This article is for informational purposes only and is not a commitment to lend. The example is hypothetical, shows loan-amount math only, and excludes interest, payments, fees, and actual closing costs. Leverage, reserve, term, and program guidelines are general ranges, vary by lender, and are subject to change without notice. All loans subject to credit approval, appraisal, and lender guidelines. Business-purpose loans are for non-owner-occupied investment property only and are available only in states where Aspire Mortgage is authorized to operate.
