What do you need for a ground-up construction loan?

Approved plans, permits either issued or clearly close, a licensed contractor with reviewed bids, an itemised schedule of values, and either land you own or land under contract. The loan is sized against total cost and finished value, not your income.

Can you finance land and construction together?

Yes, and it is the common structure. Land funds at closing, vertical costs are released in draws against completed work. Equity in land you already own usually counts toward your contribution rather than requiring fresh cash.

How much do you have to put into a ground-up construction deal?

Expect to cover a meaningful share of total project cost, commonly 10% to 25%, plus closing costs and an interest reserve. Land equity often satisfies part of it. A build with nothing of yours in it is not a file most lenders will write.

How long does a construction loan take to close?

I fund ground-up from $150K to $1M+ and close in 10 to 14 days. That is slower than a flip on purpose. Plans, permits and contractor bids get reviewed before close rather than discovered after.

BlogGuide

Ground-up construction loan requirements: what gets checked before the first shovel

A construction loan is underwritten on a budget and a schedule, not a house that exists yet. Here is what has to be in place before one funds.

August 18, 2026 · 7 min read

A fix and flip loan buys a house that already exists. A construction loan buys a plan. Everything difficult about the second one follows from that single difference.

There is no structure to appraise, no comparable condition to inspect, and no way to walk the property and see what you are lending against. The collateral is a budget, a set of drawings, and a contractor's promise about what will stand there in eleven months. So the underwriting moves to the only things that can be checked in advance: whether the plan is real, whether the cost is honest, and whether anyone has actually built this before.

What the loan is sized against

Two numbers, and the smaller one wins.

Loan to cost. Total project cost is land plus hard costs plus soft costs. Soft costs are the ones first-time builders leave out: permits, engineering, impact fees, utility connections, survey, insurance during construction. A lender advances a percentage of that total, and you cover the rest.

Loan to completed value. What the finished house appraises for, based on an as-completed appraisal against the plans. This is the ceiling. A build can pencil beautifully on cost and still get cut back here, because the market does not care what it cost you to build.

Where those two disagree, the loan is the lower of them. New builders are usually surprised by that. They budget from cost and get sized from value.

The five things that have to be in place

1. Entitlements and permits

This is the item that kills the most files, and it kills them quietly.

Land that is zoned for what you intend to build, with plans approved and permits either issued or demonstrably close, is a fundable deal. Land that needs a variance, a subdivision, a use approval, or a hearing on a calendar is a speculative bet on a municipal process with no fixed timeline. Those are different products and they price differently.

If the permit is not issued yet, say so early and say where it actually is in the queue. A permit two weeks out is a scheduling detail. A permit contingent on a zoning board meeting in March is the entire risk of the deal.

2. A contractor who survives review

Bids get reviewed before close, not after. That ordering is deliberate.

What gets looked at is whether the contractor is licensed and insured for the work, whether they have completed builds of this type and size, and whether the bid is a real document. A bid that reads "framing: $80,000" is not a bid. It is a number with a word in front of it.

The uncomfortable version of this check is that a contractor who has never taken a house from footings to certificate of occupancy is a risk on your file even if their pricing looks excellent. Pricing that looks excellent is frequently the tell.

3. A schedule of values

This is the document the whole loan runs on, and it is the one most borrowers have never produced before.

A schedule of values breaks total construction cost into line items tied to identifiable stages: site work, foundation, framing, roof dry-in, rough mechanicals, insulation and drywall, finishes, final. Each line carries a dollar amount, and the sum is the construction budget.

Draws are released against those lines as the work is completed and inspected. That mechanic works the same way it does on a rehab, and the draw schedule is worth understanding in detail before you sign anything, because it determines when money reaches you relative to when your subs expect to be paid.

The practical consequence: you fund the first stage yourself and get reimbursed. On ground-up that first stage is often site work and foundation, which is not a small number.

4. Land, owned or under contract

Land can be financed as part of the loan or contributed as equity if you already own it.

If you own it outright, its value typically counts toward your contribution rather than requiring fresh cash. That is the single most useful thing about holding land before you build, and it is why a lot of builds only work for people who bought the lot a year earlier.

If you are buying the land with the loan, it funds at closing and the vertical costs follow in draws. Expect the lender to want title work on the parcel that is as clean as any house purchase, plus confirmation that utilities are available and what it costs to bring them in. A lot with no sewer connection is a different budget than the one you wrote.

5. An interest reserve, and reserves beyond it

Construction takes longer than rehab. Interest accrues the entire time, and there is no rent and no sale until the end.

Most construction loans carry an interest reserve funded at closing, which pays the monthly carry out of the loan itself. It is a sensible structure and it hides a trap: the reserve is sized for the projected timeline. When the build runs four months long, the reserve is exhausted and the carry becomes cash out of your pocket at precisely the moment your budget is already stretched.

Hold reserves past the reserve. The projects that fail are rarely the ones that went wrong. They are the ones that went slow.

What does not get checked

The same list as any asset based loan, and for the same reason.

Tax returns. Not requested.
Debt to income ratio. Not the basis of the decision.
Employment history. Irrelevant to whether the house gets built.

Credit is a pricing input rather than a gate, exactly as it is on a hard money purchase. Pricing is set per borrower and per deal, and confirmed in your term sheet rather than quoted in advance. On ground-up specifically, build experience moves the number more than it does on a flip, because the risk being priced is execution risk rather than valuation risk.

The exit, stated before you break ground

Every construction loan is temporary and the lender wants to know what replaces it. There are two credible answers.

Sell it. The as-completed appraisal is your evidence, and your margin needs to survive selling costs, the full carry through a build plus a listing period, and a market that will be some months older than the one you underwrote in.

Refinance and hold it. Usually a DSCR loan once the property is finished and rented. Check that exit against real rents before you build, not after. A house that costs $420,000 to build and rents for $2,600 is a completed project and a failed investment at the same time.

"I will decide when it is done" is not an exit. It is a plan to find out.

Where ground-up actually goes wrong

Not usually in the building. In three places, in this order.

The budget was written to win an approval. Numbers assembled to make a deal appear fundable rather than to finish a house. This is visible in a schedule of values that is suspiciously round, and it surfaces at drywall when the money is gone and the house is not.

The timeline was the contractor's best case. Best case assumes no weather, no inspection delays, no material lead times, and no sub disappearing for a better job. Build the schedule you would defend to someone lending against it.

Cost per square foot came from the internet. Build costs are intensely local and intensely specification dependent. The same discipline that applies to rehab cost per square foot applies harder here, because there is no existing structure absorbing any of the work.

What to have ready before you call

The parcel address and either the deed or the executed contract
Approved plans, and the permit status stated honestly
A contractor's itemised bid and their license and insurance
Your schedule of values
The as-completed value basis: comparable new construction, not resales of forty-year-old houses on the same street
Your exit, with a timeline
Proof of funds for your contribution, closing costs and reserves

Before you send it

Run the cost and the finished value against each other first. If the project does not clear once the full carry over a realistic build, closing on both ends and selling costs are charged against it, no approval fixes that. The deal calculators will show you where the file lands.

When it does clear, send it over. Ground-up runs $150K to $1M+ and closes in 10 to 14 days, and you get written terms inside 24 to 48 hours either way.

Common questions

What do you need for a ground-up construction loan?: Approved plans, permits either issued or clearly close, a licensed contractor with reviewed bids, an itemised schedule of values, and either land you own or land under contract. The loan is sized against total cost and finished value, not your income.
Can you finance land and construction together?: Yes, and it is the common structure. Land funds at closing, vertical costs are released in draws against completed work. Equity in land you already own usually counts toward your contribution rather than requiring fresh cash.
How much do you have to put into a ground-up construction deal?: Expect to cover a meaningful share of total project cost, commonly 10% to 25%, plus closing costs and an interest reserve. Land equity often satisfies part of it. A build with nothing of yours in it is not a file most lenders will write.
How long does a construction loan take to close?: I fund ground-up from $150K to $1M+ and close in 10 to 14 days. That is slower than a flip on purpose. Plans, permits and contractor bids get reviewed before close rather than discovered after.

Have a deal like this

Run your numbers.

The calculators charge the costs this piece describes: points, interest over the hold, closing on both sides, carry, and the cost to sell. It takes about a minute.

Run your numbers Submit a deal