New Construction Loans Explained: How to Finance Ground-Up Deals

New construction loans are designed for real estate investors and developers building properties from the ground up. These loans differ from traditional financing because they fund both the land purchase and construction costs.

If you're focused on rental property performance, DSCR loans are commonly used for long-term investment financing.

What is a new construction loan?

A new construction loan is a short-term loan used to finance the building of a property from start to finish. Funds are typically distributed in stages as construction progresses.

Key requirements lenders look for

1. Land value

Lenders evaluate the value and location of the land being developed.

2. Construction budget

A detailed budget and timeline are required to secure funding.

3. Builder experience

Many lenders require experienced builders or general contractors.

4. Loan-to-cost (LTC)

Most lenders finance 70–85% of the total project cost.

5. Exit strategy

Lenders want to know how you plan to repay the loan (sale or refinance).

Typical loan terms

• Loan term: 12–24 months

• Interest rates: 9%–15%

• Interest-only payments during construction

• Draw-based funding
  

How to get approved faster

• Provide a detailed construction plan

• Work with experienced contractors

• Match your deal with the right lenders

LYNDIFY helps you identify which lenders fit your deal before you send it.

For shorter-term investment strategies, fix and flip financing may be a better fit than construction-based lending.