In just 7 minutes, you’ll know if a Ground-Up Construction Loan fits your project, your likely leverage, timeline, and the fastest path to approval.
What Is Ground-Up Construction Financing?
Ground-up construction financing is designed for builders, developers, and investors who are starting from bare land, or tearing down an existing structure, to build new residential or multifamily projects.
Unlike traditional bank loans that fund stabilized properties, these loans provide short-term capital to cover land acquisition, vertical construction, and soft costs, all rolled into one streamlined facility.
Ground-up loans typically fund in stages (known as “draws”) as work progresses, and interest is only charged on disbursed funds, helping preserve cash flow during the build
How LTC, LTV, and ARV Work Together
Three key metrics determine your leverage and risk profile:
| Term | Meaning | Typical Range |
| LTC (Loan-to-Cost) | % of total project cost financed by lender | 70–85% |
| LTV (Loan-to-Value) | % of completed property value financed | 65–75% |
| ARV (After-Repair Value) | Projected market value upon completion | Appraisal-based |
Example:
A $1.5M build with $1M in costs could secure up to 80% LTC ($800K). Upon completion, if appraised at $1.8M, the LTV may be around 70%.
Understanding these ratios helps balance cash to close, profit margin, and exit options.
Interest Reserve & Draw Process
A hallmark of ground-up construction loans is the interest reserve, a built-in fund that automatically covers monthly interest payments during construction, so your project stays current without affecting cash flow.
The draw process works in phases:
- Inspection: Progress verified by a third-party inspector.
- Approval: Funds released for completed milestones.
- Replenish: Remaining balance adjusted for next draw.
This ensures transparency, cost control, and lender confidence at each stage.
Typical Timelines (Pre-Approval → Funding → Draws → Exit)
| Stage | Duration | What Happens |
| Pre-Approval | 1–3 days | Submit plans, budget, builder resume, entity docs |
| Underwriting & Appraisal | 7–14 days | Feasibility, LTC, and valuation confirmed |
| Closing | 2–5 days post-approval | Final docs, wire setup, draw account created |
| Construction Period | 6–18 months | Draws funded as project milestones completed |
| Exit | Upon CO or sale/refi | Payoff or refinance to DSCR or agency loan |
When Ground-Up Beats Bank, Agency, or Bridge Financing
Ground-up construction loans shine when speed, flexibility, and leverage matter more than ultra-low rates.
They often outperform traditional bank or bridge loans in situations like:
Scenarios Where Ground-Up Financing Excels
- Infill SFR Builds: Replacing a teardown with a modern single-family home in a high-demand zip code.
- Small Multifamily Projects: Duplex to 12-unit developments where agency debt isn’t available pre-stabilization.
- Subdivision Phases: Financing one phase at a time without needing the entire master project funded upfront.
- Urban Redevelopment: Projects with higher construction costs but strong end-market absorption.
Experience, Scope, Permits, and Budget
Lenders evaluate the borrower’s experience (as GC, builder, or managing member), scope of work, and permit readiness.
Having detailed plans, competitive bids, and contingency reserves (typically 5–10%) greatly accelerates approval and keeps projects on track.
Appraisal, Feasibility, and Reserves
- Appraisal: Confirms the completed value (ARV) and cost-to-value ratio.
- Feasibility Review: Ensures project viability and realistic timelines.
- Reserves: Interest, contingency, and sometimes taxes/insurance are pre-funded at closing for smoother execution.
Exit & Risk Management
Every ground-up project has two potential exits, sell or refinance, and both require planning from day one.
Sell vs. Refi to DSCR
- Sell: Ideal when market conditions are strong and builder capital is better redeployed.
- Refi: Roll into a DSCR loan to hold as rental property; best for long-term income investors.
Cost Overruns & Change Orders
Even with the best planning, overruns happen.
Expect that labor, materials, or permitting delays can add 5–10% to total costs.
Strong lenders will require contingency reserves and provide fast draw modifications to keep you funded through completion.
Real-World Snapshots
Case Study 1: Infill SFR Build Los Angeles, CA
- Loan Amount: $950,000 (80% LTC)
- Timeline: 9 months from approval to CO
- Result: Sold for $1.55M, yielding 20% ROI after payoff
Case Study 2: 6-Unit Multifamily Dallas, TX
- Loan Amount: $2.8M (75% LTC)
- Timeline: 14 months total
- Result: Refinanced to DSCR at 70% LTV, stabilized at $6,500/month NOI
Ground-Up Construction Loan FAQs
How do draws work?
Funds are released in stages based on verified progress. After inspection and lender approval, the next draw becomes available.
What is an interest reserve?
A pre-funded account that covers monthly interest payments automatically during construction.
Max LTC vs. cash to close?
Typical leverage is 75-85% LTC. Borrowers cover land equity, reserves, and soft costs not financed.
Can I finance land and construction together?
Yes, combined loans are available when land value supports total LTC/LTV limits.
Typical time to close?
Pre-approval in 1-3 days, full close in 10–15 days depending on appraisal and title readiness.
Do I need prior GC experience?
Experience helps but is not mandatory, especially with a licensed GC and complete plans in place.
Ready to Build?
Whether you’re developing your first duplex or your next subdivision phase, Realty Capital Financial can fund your project fast, with flexible terms, expert support, and predictable draws.
