Ground-up construction financing provides capital for qualified investors and developers building new residential, multifamily, mixed-use or commercial properties.
The review is based on the land or purchase basis, approved plans, permits, construction budget, development team, project timeline and expected completed value.
Construction loans differ from standard acquisition loans because funds are typically released as the project reaches approved stages. This structure helps align loan proceeds with completed work and the project budget.
Before closing, the financing provider may review plans, permits, contractor qualifications, cost estimates, project schedule and the borrower’s ability to cover required equity and potential cost overruns.
Construction financing may be available for:
Project type and geographic availability vary.
The initial construction review may require:
Additional documentation may be requested during underwriting.
Rather than releasing the entire construction budget at closing, approved construction funds may be held in a controlled account and disbursed through a draw process.
A typical draw may involve:
The exact process depends on the financing provider and project.
Some transactions may include land acquisition and construction costs. The structure depends on the land basis, equity, budget and completed value.
Requirements vary. Some projects may need fully approved permits before funding, while others may be reviewed based on the current entitlement and permit status.
Relevant experience is an important underwriting factor. Less-experienced borrowers may need a qualified general contractor or stronger supporting factors.
Construction funds are commonly released through draws after work has been completed and verified.
Completion financing may be considered when sufficient information is available regarding the current condition, remaining budget, title, contractor and exit strategy.
Common exits include selling the completed property or refinancing into permanent investment-property or commercial financing.