Ground Up Construction Loans for Real Estate Investors
Finance up to 75% of land cost and 100% of vertical construction costs on residential investor builds. 12 to 24 month interest only terms with draws tied to inspection milestones. Exit to DSCR rental or sale.
What is a ground up construction loan for residential investors?
A ground up construction loan finances the purchase of land plus 100% of vertical construction on residential investor 1 to 4 unit builds. 12 to 24 month interest only terms, funded in tranches against inspection milestones. Sized to 85 to 90% loan to cost (LTC) on total project cost, which translates to approximately 25 to 35% loan to completed value (LTV) because the finished retail property value typically exceeds construction cost by 2 to 3×. For example: a $700 to 800K loan on a $2.5 to 3M completed property = ~24 to 32% LTV at completion/sale. Rate range 9 to 12% interest only with interest accruing on drawn balance only. Interest is typically capitalized (reserved) during construction so sponsor avoids carry costs. Exit to sale or DSCR rental refinance once stabilized (60 day seasoning typical).
, PeerSense Capital Advisory · 2026-05-01
At a glance, who this is for
- ✓ Builders + developers funding 1 to 4 unit ground up residential investor builds
- ✓ Spec builders planning to sell + build to rent operators planning DSCR refi
- ✓ Borrowers with 10 to 15% equity contribution + verified general contractor
- ✓ Project sizes $10M and up total cost basis
Program details
| Loan size | $10,000,000 and up |
| Land cost financed | Up to 75% of land cost |
| Vertical construction financed | Up to 100% |
| What LTC includes | Land + hard construction costs + soft costs (permits, architect, engineering) + contingency + interest reserve |
| Total LTC cap | 85-90% (borrower contributes 10-15% equity). Translates to ~25-35% LTV on completed value. |
| Interest reserve | Capitalized during construction (borrowed, not paid in cash). Sponsor avoids carry costs month-to-month. |
| Term | 12-24 months interest-only |
| Rate | 9.00-12.00% IO (May 2026 indicative) |
| Min FICO | 660 mid-score |
| Property types | 1-4 unit residential, townhomes, PUD |
| Recourse | Full recourse + personal guarantee |
| Draw schedule | 4-6 draws against inspection milestones |
| Inspection cost | ~$300-600 per draw, borrower-paid |
| Builder experience | First-time builders accepted with verified GC |
| Exit | Sale OR DSCR rental refinance |
| Decision timeline | 5-7 business days |
| Close timeline | 21-35 days from complete file |
How Construction Loans Actually Work: LTC, Draws, and Land Equity
Land Equity
If you own the land free and clear, that counts as your equity contribution. Lenders value land at cost or appraisal, whichever is lower. Own land worth $200K, project cost $800K = 25% equity, qualify for 75% LTC financing.
Interest Reserve
Months of interest (typically 12 to 18 months' carry) are funded upfront and set aside. During construction, the lender draws interest from this reserve. You don't pay monthly carry out of pocket. The lender takes it from the funded reserve.
Draw Schedule
Funds release in stages (typically 4 to 6 draws) as construction milestones are verified by third party inspection. Example: foundation 15%, framing 20%, rough ins 20%, interior 25%, final 20%. Each draw requires proof of work completed.
Who qualifies
- ✓ US citizens, LPRs, foreign nationals, LLC, individual, trust
- ✓ 660+ FICO mid score (lower with stronger profile)
- ✓ Verified GC license + insurance + 3 prior project references
- ✓ Full plans, permits, and itemized construction budget
- ✓ 10 to 15% equity contribution (cash or land equity)
- ✓ Builder financial statement + 2 years tax returns or 12 months bank statements
How it works
- 1. Inquiry, submit project facts via the form below
- 2. Term sheet, after the file is on the desk, indicative pricing + structure
- 3. Underwriting, appraisal + plans review + GC verification
- 4. Close + first draw, fund land purchase + initial construction draw
- 5. Construction draws, 4 to 6 inspection tied draws across 12 to 24 months
- 6. Exit, sale OR refinance to DSCR rental loan
Frequently asked questions
What is a ground up construction loan?+
A ground up construction loan finances the purchase of land plus the cost of vertical construction on a residential investor build (1 to 4 unit). Interest only during construction (12 to 24 month term), funded in tranches against inspection milestones.
How are construction draws structured?+
Draws are tied to inspection milestones, typically 4 to 6 draws across the construction timeline. Standard schedule: Draw 1 (foundation/site work, ~15%), Draw 2 (framing complete, ~20%), Draw 3 (rough mechanicals + drywall, ~20%), Draw 4 (interior finishes, ~25%), Draw 5 (final completion, ~20%). Each draw requires a third party inspection report verifying completed work.
What's the typical equity contribution?+
Builders typically contribute 10 to 15% of total project cost as equity (the gap between 85 to 90% LTC max and 100%). On a $500K total project (land + vertical), expect $50 to 75K equity injection. Some programs accept land equity in lieu of cash if the borrower already owns the land.
What's the construction loan rate?+
Ground up construction loan rates run 9 to 12% interest only as of May 2026, depending on builder experience, project complexity, market, and exit thesis. First time builders typically price 50 to 150 bps wider than experienced developers. Interest accrues only on drawn balance, not full commitment.
Can a first time builder qualify?+
Yes, most programs accept first time builders with a verified general contractor, completed plans/permits, and adequate equity contribution. Some programs require GC to have 3+ verified prior builds; others accept a builder of record relationship.
What's the exit strategy?+
Two primary exits: (1) Sale, list and sell the completed property, payoff the construction loan from sale proceeds. (2) DSCR rental refinance, keep as rental, refinance into long term DSCR loan once stabilized (60 day seasoning typical).
What documentation is required?+
Builder financial statement, 2 years tax returns or 12 months bank statements, GC license + insurance + 3 references, full architectural plans + engineering specs, signed building permit, recorded land deed, itemized construction budget, projected sale comps or rental projection.
What about spec build vs build to rent?+
Both qualify. Spec builds use sale comps as the underwriting basis. Build to rent qualifies based on projected DSCR. Some programs offer a slight pricing benefit for build to rent due to takeout DSCR loan certainty.
What's the difference between LTC (loan to cost) and LTV (loan to value)?+
LTC measures the loan against total project cost (85 to 90% max). LTV measures the loan against finished property value (typically 25 to 35% on ground up). Since finished value is 2 to 3× construction cost, an 85% LTC loan is actually only 25 to 35% LTV. That protective LTV cushion is why these loans work with interest only terms and inspection draws.
What about land seasoning requirements?+
Most programs have no land seasoning requirement if you already own the land. If purchasing land as part of the deal, it's acquired using loan proceeds with no seasoning needed. Some lenders prefer 12+ months ownership prior to construction start; ask your lender about their policy.
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Indicative pricing after the file is on the desk of complete project facts.
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