How Ground-Up Construction Loans Work: Draws, Timelines, and What Lenders Look For
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Construction financing confuses people because it does not behave like a mortgage. You are not handed a sum of money at closing. You are given a commitment, and then you earn access to it in stages, against work that has already been done. Understanding that one mechanic explains almost everything else — how much you can borrow, what it costs to carry, and why projects run short of cash even when the loan was sized correctly.
Two numbers cap your loan, and the smaller one wins
Every construction loan is sized against two ceilings at once.
The first is cost-based: a percentage of what the project actually costs you, land plus construction. ACP’s programs go up to 85% of total project cost on qualifying deals.
The second is value-based: a percentage of what the finished building will be worth. That runs up to 70% of completed value.
Your loan is the lower of the two, not the higher, and not an average. This catches people out. A project can pass the cost test comfortably and still be capped by the value test, and the gap between the two is cash you have to bring. Run both numbers before you buy the lot, not after.
How draws actually work
Construction funds are released through milestone-based draws, and each draw is verified by inspection before it funds. Foundation goes in, an inspector confirms it, that portion of the budget is released. Framing goes up, same again.
Read that sequence carefully, because the order is the whole point: the work comes first, the money comes second. You or your builder pay for the foundation, then get reimbursed for it. The loan does not front you the cost of the next phase.
This is the single most common reason well-financed projects stall. The loan was sized correctly, the budget was accurate, and the borrower still ran out of cash — because nobody planned for the gap between paying a subcontractor and being reimbursed for that payment. Ask your lender how long a draw takes from request to funding, and hold at least that much working capital on top of your required equity.
You pay interest on what you have drawn
During construction, payments are interest-only, and interest is charged only on funds actually drawn — not on the full committed amount. A $600,000 commitment with $150,000 drawn accrues interest on $150,000.
That is genuinely favourable, and it changes how you should think about the schedule. Your carrying cost starts small and climbs as the project progresses, which means a delay in month two costs far less than a delay in month nine. It also means the total interest you pay is a function of how fast you build, not just how long the loan runs.
What actually determines the timeline
Borrowers tend to budget time for construction and forget everything on either side of it. In practice the schedule is set by permits and approvals before you break ground, inspection turnaround at every draw, and, at the end, the certificate of occupancy and the appraisal that your exit depends on.
Build the schedule backwards from the exit. If you plan to refinance into a rental loan on completion, that refinance needs a finished, valued, and in most cases occupied property. If you plan to sell, you need marketing time and a buyer’s own financing timeline. Neither happens the week the last nail goes in.
What a lender is actually looking at
- The builder, not just the borrower. The experience of the general contractor or builder carries real weight, separately from your own.
- Whether the budget is realistic. A line-item budget that reflects current costs reads very differently from a round number. An underbudgeted project is a bigger risk than an expensive one.
- Whether the completed value is supportable. Some programs use a standard appraisal; others use a technology-based valuation. Either way the number has to be defensible from comparable properties, not from optimism.
- Your liquidity after closing. Reserves matter more here than in any other product, precisely because of the draw mechanic above.
- The exit. Build-to-sell and qualifying build-to-rent are both financeable, but they are underwritten differently, and the lender needs to know which one you are doing before the loan is structured.
If you have never built before
A lack of prior ground-up experience does not automatically disqualify a project. It does, however, affect approval, leverage, pricing, required equity, reserves, and which programs fit at all. Borrowers with a completed-project track record generally access meaningfully higher leverage than first-time builders.
The practical implication: if this is your first ground-up project, assume you will bring more cash than the headline leverage suggests, and choose your builder with that in mind. An experienced general contractor materially improves how a first-time borrower’s file reads. Some programs require a minimum credit score around 650; others weigh the asset and the builder’s experience more heavily than traditional credit and income documentation.
The short version
Size the loan against both ceilings and plan for the lower one. Hold working capital for the gap between paying for work and being reimbursed for it. Build the schedule backwards from your exit, not forwards from your groundbreaking. And be honest about experience — on a ground-up project the lender is underwriting the team as much as the building.
Have a project you want reviewed?
Send the property or lot address, your budget, the completed value you expect, and your timeline. ACP will come back with the structures that fit and what each would require.
Investment-property financing is subject to underwriting, lender approval, appraisal or alternative valuation, title work, and a complete borrower file. Program terms described here reflect currently available structures and vary by property, borrower, and location. Nothing here is a commitment to lend.