Investor guide. Updated September 2026

How do ground up construction loans for real estate investors work?

A ground up construction loan for an investor funds land acquisition (or refinances land you own) plus the hard and soft costs of building, released in draws as each stage passes inspection. In 2026 typical terms are up to 85% to 90% of total project cost, capped at 65% to 70% of the completed value, 12 to 24 month terms, interest-only at roughly 10% to 13%, and 1 to 3 points. Approved plans, a permit path and a licensed builder are the core requirements.

How the loan is sized

Construction loans are underwritten on cost and on completed value, and the lower number controls.

Test	Typical 2026 ceiling	What counts
Loan to cost (LTC)	85% to 90% of total cost for experienced builders; 75% to 80% for a first build	Land purchase price (or current value if owned 12+ months), hard costs, soft costs, contingency, interest reserve.
Loan to completed value (LTV or LTARV)	65% to 70% of the as-completed appraised value	Appraisal is done "subject to completion" from the plans and specs.
Land advance at closing	Commonly 50% to 75% of land cost	The balance of the loan is the construction holdback, drawn as you build.

Example: land $300,000, build cost $600,000, completed value $1,300,000. 90% of cost is $810,000. 70% of value is $910,000. The loan is $810,000 with roughly $90,000 of borrower equity, and the construction holdback is released across five or six draws.

What you need before a lender will price it

Plans and a budget. Architectural drawings and a line-item budget from the builder. A napkin number gets a napkin quote.
Permit status. Approved, submitted, or pre-application. Loans can close before the permit is issued, but the first construction draw will not release without it.
Builder. A licensed general contractor with comparable completed projects. Owner-builders are financeable with a track record, at lower leverage.
Experience. One or more completed ground up projects, or heavy rehab experience plus a strong GC, gets full leverage. A first build is still financeable with more equity.
Exit. Sale, or refinance into a DSCR or bank loan on completion. For condos, the sell-out schedule. For rentals, projected rent and coverage.
Credit and liquidity. 680+ credit is the usual floor; reserves to cover the interest not held in the reserve plus a cost overrun cushion.

1 to 4 units versus 5 or more units and condos

Single family through four family new construction is the standard residential product and prices as described above. Five or more units, mixed use, and condominium projects are underwritten as small balance commercial construction. The mechanics are the same, but expect the lender to look harder at absorption (how fast the units sell or lease), require a full appraisal with an as-complete and as-stabilized value, and often ask for a modest pre-sale or pre-lease test on larger projects. In Massachusetts a condo project also needs the master deed and condominium trust prepared before individual units can be sold, so build that legal work into the budget and timeline.

Interest reserve and draws

Because nothing is producing income during construction, most loans fund an interest reserve at closing equal to 6 to 12 months of payments. Interest is typically charged only on the outstanding balance, so early months are cheap and later months are not. Draws follow a schedule tied to milestones (foundation, framing, rough mechanicals, drywall, finishes), each released after an inspection, usually within 3 to 7 business days of the request. See the draw guide below for the full process.

Timeline

A construction loan closes in 2 to 4 weeks once plans, budget and builder are in hand, longer if an as-complete appraisal is required. Terms run 12 to 24 months and extensions are usually available for a fee if the project runs long, which most do.

How 316 Capital places construction loans

316 Capital is a private lending and capital advisory firm. Construction is where the choice of capital partner matters most, because leverage, draw speed and appetite for 5+ unit or condo projects differ widely between sources. We place the project with the partner built for it and stay on the file through every draw.

Price your deal, no cost, no credit pull

Send the address, purchase price, budget and target loan amount. One point of contact from pricing through closing.

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Common questions

Can I get a construction loan on land I already own?

Yes. If you have owned the land for 12 months or more, most lenders use current appraised value rather than what you paid, which can cover most or all of your required equity.

Do I need the building permit before closing?

Usually not to close, but yes before the first construction draw. Many investors close on the land with the permit pending and start draws once it is issued.

Can I finance an 8 unit condo project as an investor?

Yes. Projects of 5 or more units are placed as small balance commercial construction. Expect a full as-complete appraisal, closer attention to the sell-out plan, and in Massachusetts the master deed and condo trust as part of the exit.

How much of the land cost is advanced at closing?

Commonly 50% to 75% of the land purchase price, with the rest of the loan held back for construction. Higher land advances are possible for experienced builders with approved permits.

What if the build goes over budget?

Cost overruns are the borrower's responsibility, which is why lenders like to see a contingency line and reserves. Some capital sources will re-underwrite and increase the loan mid-project if the completed value supports it.

316 Capital is a private lending and capital advisory firm. We arrange business-purpose real estate financing through institutional capital partners; loans are not available for owner-occupied primary residences. Figures on this page are typical market ranges as of September 2026 and are not an offer or commitment. Every quote is transaction-specific and subject to underwriting. Contact info@316cap.com or +1 (617) 546-4817.