New Construction Loan vs Renovation Loan: What's the Difference?
A construction loan funds a build from the ground up; a renovation loan funds improving an existing structure. Learn how they differ and which fits your project.
A ground-up construction loan funds building a brand-new structure from the dirt up. A renovation loan (the rehab portion of a fix and flip or bridge loan) funds improving a property that already exists. Both release money in draws, but they are sized and underwritten differently.
Ground-up construction
- Funds land plus vertical construction of a new building.
- Sized on loan-to-cost (LTC), because there is no existing value yet.
- Draws follow build milestones from foundation to finish.
- Fits spec builders and developers.
Renovation / rehab
- Funds improvements to a standing structure (the rehab budget on a flip).
- Often paired with purchase leverage and capped against ARV.
- Draws follow the scope of work.
- Fits flippers and value-add investors.
Which do you need?
Building new on a lot or after a teardown? Construction loan. Buying a property to renovate and sell or hold? A fix and flip loan with rehab funding. The deciding factor is whether you are creating a structure or improving one.
Frequently asked
Rates, leverage, and timelines mentioned in this guide are typical figures, subject to underwriting and market conditions. Not a commitment to lend. Nothing here is legal, tax, or investment advice.
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