Ground-up and heavy-renovation financing: draws, budgets, contingency and the lender's inspection cycle.
A construction loan funds the building of a property from the ground up, or a renovation so extensive it amounts to a rebuild. The lender approves a budget and releases funds in draws as construction reaches milestones confirmed by inspection, and sizes the loan against the total cost and the completed value. Investors commonly use construction loans for spec homes, build-to-rent projects and small multifamily developments.
Lenders underwrite the builder's experience, the plans, permits and budget, the contingency for overruns, the land position and the exit, whether a sale or a refinance into permanent debt. These guides cover how loan-to-cost and draws work, what lenders need before closing, and how land and construction financing fit together.
The lender releases the approved budget in stages tied to construction milestones. After each stage, the borrower requests a draw, an inspector confirms the work, and the lender funds that portion, sometimes directly to contractors. The borrower must carry costs between draws and fund any overruns beyond the contingency.
Some lenders work with newer builders, usually with lower leverage, a larger contingency, a licensed general contractor with a track record, or an experienced partner. Ground-up construction is commonly where lenders weigh experience most heavily, so a smaller first project helps.
Often, yes. Lenders commonly credit equity in land the borrower already owns toward the required contribution, based on its appraised value or what was paid for it. How it is credited depends on the lender and how long the land has been owned.
Real Estate Funding — DSCR, fix and flip, construction, bridge and portfolio loans for investors.