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Ground-Up Construction Financing

Building from the ground up? Here's how to finance your new construction project.

What is Ground-Up Construction?​

Ground-up construction means building a new structure from raw or cleared land. This includes:

  • Custom homes - One-off builds to owner specifications
  • Spec homes - Built to sell without a specific buyer
  • Townhome developments - Multiple attached units
  • Small multifamily - Duplexes to small apartment buildings
  • Commercial buildings - Retail, office, warehouse

Ground-Up Loan Parameters​

ParameterRangeNotes
Loan Amount$150K - $20M+Higher for multifamily/commercial
LTC (Loan-to-Cost)75% - 90%Higher with track record
LTV (As-Complete)65% - 75%Based on appraised value
Term12 - 24 monthsExtensions available
Rates10% - 14%Based on experience and project
Points1.5 - 3.0One-time at closing

Project Phases & Funding​

Phase 1: Pre-Development​

What happens:

  • Site acquisition
  • Due diligence
  • Architectural design
  • Engineering
  • Permitting

Financing:

  • Most lenders require permits before funding
  • Land loans (50-65% LTV) can cover acquisition
  • Equity or bridge for soft costs

Phase 2: Site Work​

What happens:

  • Clearing and grading
  • Utilities connection
  • Foundation preparation
  • Driveway/access

Typical draw: 15-20% of loan

Phase 3: Vertical Construction​

What happens:

  • Foundation
  • Framing
  • Roofing
  • Exterior finishing

Typical draw: 40-50% of loan

Phase 4: Interior Build-Out​

What happens:

  • MEP rough-in (mechanical, electrical, plumbing)
  • Drywall and paint
  • Flooring
  • Cabinets and fixtures
  • Final finishes

Typical draw: 25-35% of loan

Phase 5: Completion​

What happens:

  • Final inspections
  • Certificate of Occupancy
  • Punch list completion
  • Marketing/sale preparation

Typical draw: 5-10% of loan (holdback)

What Lenders Look For​

Experience Requirements​

Builder ExperienceMaximum LTCTypical Rate
First-time builder65-70%13-14%
1-3 projects75-80%11-13%
4-10 projects80-85%10-12%
10+ projects85-90%9-11%

Financial Requirements​

  • Credit score: 680+ (720+ preferred)
  • Liquidity: 10-15% of project cost in cash reserves
  • Net worth: Equal to or greater than loan amount
  • No recent bankruptcies: 3+ years seasoning

Project Requirements​

  • Permits: In-hand or imminent
  • Plans: Complete architectural and engineering
  • Budget: Detailed line-item with contingency
  • GC Contract: Fixed-price or cost-plus with cap
  • Appraisal: Supports as-complete value

Ground-Up Budget Template​

Hard Costs (70-75% of total)​

Category% of Hard Costs
Site work & foundation15-20%
Framing & structural20-25%
Roofing & exterior10-15%
MEP systems15-20%
Interior finishes20-25%
Landscaping & exterior5-10%

Soft Costs (15-20% of total)​

CategoryTypical Cost
Architecture & engineering6-10% of hard costs
Permits & fees2-4% of hard costs
Surveys & geotech$5K-$15K
Legal & accounting$5K-$15K
Insurance (builder's risk)0.5-1% of value

Financing Costs (8-12% of total)​

CategoryAmount
Loan points1.5-3% of loan
Interest reserve12-18 months
Appraisal$2,500-$5,000
Closing costs2-3% of loan

Contingency​

Minimum: 10% of hard costs
Recommended: 15% for new builders
Complex projects: 20%+

GC (General Contractor) Requirements​

What Lenders Require​

  • Active contractor's license
  • Insurance: GL, WC, auto
  • 3+ similar projects completed
  • References from prior lenders
  • Financial stability documentation

Contract Types​

TypeDescriptionRisk
Fixed-priceGC guarantees total costLowest for builder
Cost-plus with capCosts + fee, maximum setModerate
Cost-plus openCosts + fee, no capHighest for builder

Lender preference: Fixed-price or cost-plus with cap (5-10%)

Timeline Considerations​

Typical Ground-Up Timeline​

PhaseDuration
Pre-development3-6 months
Permitting1-3 months
Site work1-2 months
Foundation2-4 weeks
Framing4-8 weeks
MEP rough-in2-4 weeks
Drywall & finishes4-8 weeks
Final/CO2-4 weeks

Total: 12-18 months typical (excluding pre-development)

What Causes Delays​

  • Weather - Rain, extreme cold, hurricanes
  • Permits - Inspection failures, plan revisions
  • Supply chain - Material shortages, long lead items
  • Labor - Subcontractor availability
  • Change orders - Design modifications

Building In Buffer​

  • Add 20-30% to estimated timeline
  • Secure 18-month term even for 12-month build
  • Budget for extension fees (1-2% per 3 months)

Exit Strategies​

Option 1: Sell at Completion​

Best for: Spec homes, hot markets

  • List during construction
  • Target closing at CO
  • Factor in marketing and carry costs

Option 2: Refinance to DSCR/Rental​

Best for: Build-to-rent, hold strategy

  • Season for 3-6 months with tenants
  • Refinance to long-term DSCR loan
  • Pull out equity for next project

Option 3: Construction-to-Perm​

Best for: Custom homes, owner-occupied

  • Single closing
  • Automatic conversion at CO
  • Rate locked at start

Option 4: Sell to Investor​

Best for: Turnkey rental builders

  • Sell with tenants in place
  • Higher price than vacant
  • Quick close buyers

Risk Management​

Pre-Construction​

  • Soil testing - Know what's underground
  • Environmental - Phase I minimum
  • Survey - Confirm boundaries and easements
  • Market analysis - Validate demand and pricing

During Construction​

  • Builder's risk insurance - Required, covers structure
  • Payment/performance bonds - For larger projects
  • Lien waivers - Collect with every draw
  • Progress photos - Document everything

At Completion​

  • Final inspections - Don't skip any
  • Punch list - Complete before CO
  • Warranty documentation - For systems and materials

Getting Started​

Step 1: Assemble Your Team​

  • Architect
  • General contractor
  • Lender (MoneyMatcher)
  • Attorney
  • Insurance agent

Step 2: Prepare Your Package​

  • Site plans and renderings
  • Complete architectural plans
  • Detailed budget with contingency
  • Construction timeline
  • Your experience resume
  • Financial statements

Step 3: Get Quotes​

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