How Ground-Up Construction Loans Work
Construction loans fund a new build in stages. Learn how draws work, what LTC means, and what builders need to qualify for ground-up financing.
A ground-up construction loan funds the building of a new property from the dirt up. Unlike a regular mortgage, it releases money in stages as the work gets done, and it is priced and structured around the build timeline.
How do construction draws work?
You do not get the full loan at closing. Instead, funds release in draws tied to milestones, foundation, framing, roof, mechanicals, finish. As each stage is completed and inspected, the lender reimburses that portion. You carry interest only on the money that has been drawn, which keeps early costs down.
What is LTC (loan-to-cost)?
Construction loans are sized on loan-to-cost, the percentage of total project cost (land plus hard and soft construction costs) the lender will fund. Experienced builders can access higher LTC. You bring the remainder as equity.
What do builders need to qualify?
- A detailed budget and draw schedule
- Plans, permits, and a realistic timeline
- A track record of completed builds (helps leverage and rate)
- The land, owned or being acquired with the loan
Exit
When the build is done, you either sell or refinance into a permanent loan or a DSCR rental loan if you are keeping it. Planning the exit up front keeps the project from stalling at the finish line.
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.
Ready to put this to work?
Get real terms, usually same day. No obligation, no hard credit pull to start.