Buying distressed inventory and renovating it is the classic investor playbook — but in many markets, the better-condition deals have dried up and competition for fixer-uppers is fierce. A growing number of investors are skipping the fixer entirely and building from the dirt up. Ground-up construction lets you create exactly the product the market wants, capture the developer's margin instead of paying it to someone else, and deliver a brand-new asset with no deferred maintenance.
The financing, though, works nothing like a purchase loan. A new construction loan doesn't hand you a lump sum at closing — it funds your project in stages as you build, tied to inspections and a draw schedule, with the land and the cost to build folded into a single facility. Understanding that structure is the difference between a project that funds smoothly and one that stalls halfway through framing.
This guide walks through exactly how a new construction loan works for investors in 2026 — the draw process, what lenders look for, how much leverage you can expect, and how the numbers compare to other financing. At Funded Capital, we finance ground-up projects from 8.75% with up to 85% loan-to-cost, with term sheets in two hours and closings in as little as five days.
What a New Construction Loan Actually Is
A new construction loan — also called a ground-up construction loan — is short-term financing that covers both the land acquisition and the full cost of building a new structure on it. Unlike a fix and flip loan, which finances an existing property you renovate, a construction loan finances a building that doesn't exist yet.
Because there's no completed asset to lend against on day one, the loan is underwritten against the finished value and the budgeted cost to build. Lenders structure it as a short-term facility, typically 12 to 24 months, and release the money in pieces as the work gets done rather than all at once.
The Draw Schedule
The defining feature of construction lending is the draw schedule. Instead of receiving all your construction funds upfront, you draw them down in stages as you hit verified milestones — foundation poured, framing complete, mechanicals roughed in, drywall, final finishes. Before each draw releases, the lender sends an inspector to confirm the work is actually done.
This protects everyone. You're not paying interest on capital you haven't used yet, and the lender isn't exposed to funding a project that never progresses. Interest typically accrues only on the funds you've actually drawn, which keeps your carrying costs low in the early months when little has been disbursed.
Interest Reserves
Many construction loans include an interest reserve — a portion of the loan set aside to cover your monthly interest payments during the build. Since a property under construction produces no rent and can't be sold, an interest reserve means you're not paying out of pocket every month while you wait for the project to reach completion. It's built into the loan budget and drawn down automatically.
How the Numbers Work: LTC, LTV, and Rates
Construction financing is measured a little differently than a standard investment loan, and the two ratios that matter most are loan-to-cost and loan-to-value.
Loan-to-cost (LTC) measures the loan against your total project cost — land plus hard construction costs plus soft costs. Loan-to-value (LTV) measures the loan against the projected value of the finished building, similar to after-repair value on a flip. Lenders cap you against both, and your loan is the lower of the two limits.
Here's how a typical 2026 ground-up loan compares across lender types and to Funded Capital's program.
| Feature | Traditional Bank | Private Lender (Funded Capital) |
|---|---|---|
| Starting rate | 7.0%–9.5% | From 8.75% |
| Max LTC | 60%–70% | Up to 85% |
| Time to term sheet | Weeks | 2 hours |
| Time to close | 30–60+ days | As little as 5 days |
| Income verification | Full docs required | None on most programs |
| Draw turnaround | Slow, bureaucratic | Fast inspections |
| Loan term | 12–24 months | 12–24 months |
The trade-off is straightforward. Banks may price slightly lower at the bottom of the range, but they cap leverage at 60–70% LTC, demand full income documentation, and move on a timeline that can cost you the deal. A private lender funds more of your cost, qualifies you on the project rather than your tax returns, and closes fast enough to compete. Run any deal through our loan calculator before you commit so you know your real cash-in number.
What Lenders Look For in a Construction Borrower
A new construction loan carries more execution risk than a purchase loan, so lenders underwrite the borrower and the project more closely than they would a turnkey rental. Three things drive the decision.
Experience
Building from the ground up is harder than buying a finished house, and lenders want to see you can manage a build. Prior completed projects — flips, renovations, or past construction — strengthen your file and often unlock higher leverage. First-time builders can still get financed, but typically at lower LTC and with a more conservative budget.
A Real Budget and Plans
You'll need a detailed construction budget, a clear scope, permits or a clear path to them, and a licensed general contractor. The lender uses these to validate that your cost basis is realistic and that the projected finished value supports the loan. Padded or vague budgets are the fastest way to a declined or reduced offer.
The Exit
Every construction loan needs a defined exit, because the loan is short-term and the finished building has to either sell or refinance. If you're building to sell, your exit is the sale. If you're building to hold as a rental — increasingly popular as build-to-rent grows — your exit is a refinance into a long-term DSCR loan that qualifies on the property's rent rather than your income. Knowing your exit before you break ground is non-negotiable. For larger projects, our multifamily loans and new construction program handle 5+ unit ground-up builds.
Build to Rent: Construction Plus a DSCR Exit
One of the most durable strategies in 2026 is building specifically to hold. You finance the ground-up construction, complete the build, place a tenant, and then refinance into a DSCR loan based on the new property's appraised value and rent. Because new construction has no deferred maintenance and commands top-of-market rents, these properties often calculate a strong DSCR — making the refinance clean and pulling much of your capital back out.
It's the same recycle-your-capital logic behind the BRRRR strategy, except instead of buying and rehabbing an old property, you're creating a new one. The advantage is a newer asset with lower long-term maintenance and stronger tenant demand. The discipline required is the same: your projected rents have to support the loan, so underwrite them conservatively before you build.
Finance Your Next Ground-Up Build With Funded Capital
Ground-up construction rewards investors who can move fast and fund the full cost of a project — and that's exactly what Funded Capital is built for. We're a Miami-based private lender financing new construction across 44 states, and our program is structured around how investors actually build.
We finance ground-up projects from 8.75% with up to 85% loan-to-cost, with no income verification on most programs — your project and experience qualify you, not your tax returns. Funds release on a fast draw schedule with quick inspections, so framing never waits on paperwork. Term sheets land in two hours and we close in as little as five days, so you can lock down a lot before another builder does.
When the build is done, we don't disappear. We refinance you into a DSCR loan from 6.0% up to 80% LTV if you're holding the property, so your construction loan and your permanent financing come from the same place.
Or call us directly: (305) 857-5620 | processing@fundedcapital.com
Place loans for builder clients? Our broker program makes ground-up deals fast and predictable, and our how it works page walks through the full process.
Frequently Asked Questions
How is a new construction loan different from a regular investment loan?
A regular investment loan finances a property that already exists and funds in a single lump sum at closing. A new construction loan finances a building that doesn't exist yet — it covers land plus the cost to build and releases money in stages through a draw schedule as construction milestones are verified by inspection. Interest typically accrues only on the funds you've drawn, not the full loan amount.
How much can I borrow on a ground-up construction loan?
It depends on loan-to-cost and loan-to-value. Traditional banks usually cap leverage around 60–70% of total project cost, while private lenders go higher. Funded Capital finances new construction up to 85% loan-to-cost from 8.75%, with the loan also constrained by the projected finished value. Your actual loan is the lower of the two limits. Apply now for a project-specific number.
Do I need construction experience to qualify?
Experience helps and often unlocks higher leverage, but it isn't an absolute requirement. Lenders weigh your track record alongside your budget, plans, permits, and general contractor. First-time builders can get financed, typically at more conservative loan-to-cost and with extra scrutiny on the budget. A licensed GC and a realistic, detailed cost breakdown go a long way toward a strong offer.
What is a draw schedule and how does it work?
A draw schedule is the staged release of your construction funds tied to verified milestones — foundation, framing, mechanicals, drywall, finishes. Before each draw funds, the lender inspects to confirm the work is complete. This keeps you from paying interest on capital you haven't used and protects the lender from funding a stalled project. Faster inspections mean faster draws, which is why turnaround speed matters when choosing a construction lender.
Can I keep the property as a rental after I build it?
Yes — building to rent is one of the most popular construction strategies in 2026. You complete the build, place a tenant, then refinance the short-term construction loan into a long-term DSCR loan that qualifies on the property's rental income rather than your personal income. New construction tends to command strong rents and carries little deferred maintenance, which often produces a healthy debt service coverage ratio and a clean refinance.