Building a new investment property from the ground up is a different animal than buying and renovating an existing one — and the financing reflects that. Here's what to expect from a ground-up construction loan.
How Construction Financing Is Disbursed
Unlike a purchase loan that funds in one lump sum at closing, construction loans are disbursed in draws — portions of the loan released as specific stages of construction are completed and verified. A typical draw schedule might follow milestones like foundation, framing, mechanical/electrical/plumbing, and finish-out, though exact draw structures vary by lender and project scope.
This protects both the lender and the investor: money isn't sitting idle, and it isn't released faster than work is actually completed.
What Lenders Evaluate
Construction lending underwriting typically looks at:
- The land or lot — owned free and clear, under contract, or already financed
- Construction budget and timeline — a realistic, itemized budget matters more here than in a straightforward purchase-rehab deal
- Builder/contractor experience — especially for larger or first-time projects
- Projected value on completion — similar to ARV in a fix-and-flip deal, but for new construction
Common Pitfalls
- Underestimating the budget. Construction cost overruns are the single most common reason a project stalls mid-build. Build in contingency, not just the contractor's quote.
- Timeline mismatches. If your loan term doesn't leave enough runway for permitting delays, weather, or supply chain issues, you can end up racing the clock at the worst possible time.
- Treating the draw process as a formality. Inspections and draw approvals take time — factor that into your project schedule, not just your loan term.
Getting Started
If you have a lot secured (or under contract) and a construction plan, ACP Lending can walk through financing structure, leverage, and draw schedule for your specific project.