Construction loans for your next investment property.

Building an investment property starts with a plan for the finished project. Whether you intend to sell or hold it as a rental, construction financing needs to account for the land, building costs, timeline, and how you’ll repay the loan. Investor construction loans may help fund eligible projects from the ground up, subject to lender and project requirements.

What Is an Investor Construction Loan?

An investor construction loan provides financing to build a property for investment or business purposes. These programs are intended for properties you plan to sell or rent rather than occupy as your primary residence.

Depending on the program, financing may include land acquisition, site preparation, materials, labor, and other approved project costs. Construction funds are generally released in stages as work progresses.

The loan typically covers a limited construction period. At maturity, the balance must be repaid, often through the sale of the completed property or a refinance into longer-term financing.

Building to Sell or Rent

Build to Sell

If you plan to sell the completed property, the lender evaluates the proposed construction budget, expected completed value, local market, and projected timeline. Your plan should account for selling costs and the time needed to find a buyer after construction ends.

Build to Rent

If you intend to keep the property, construction financing may cover the building phase before you seek a separate rental-property loan. A DSCR loan or another investment-property mortgage may be an option once the property meets the applicable requirements.

Approval for the construction loan does not guarantee approval for future refinancing. Plan for the permanent loan early, including its property, rental-income, and borrower requirements.

How Construction Draws Work

Construction funds are generally held back and released through a series of draws. Each draw funds eligible work under the approved budget and draw schedule.

Before releasing funds, the lender may require an inspection, invoices, lien waivers, or other documentation confirming progress. Some programs reimburse completed work, making it important to understand which expenses you or your builder must cover before a draw arrives.

Payments during construction are often interest-only. Some programs charge interest on the amount disbursed, while other structures may apply. Confirm how interest, draw fees, and inspection charges are calculated before closing.

What Lenders Evaluate

Investor construction underwriting considers both the borrower’s ability to complete the project and the project’s financial feasibility.

The Investor and Builder

Lenders may review:

• Credit history and financial obligations.
• Available cash, equity contribution, and reserves.
• Experience with similar construction projects.
• The builder’s qualifications, licensing, and insurance, as applicable.
• Business-entity documents and ownership structure.
• Any required personal guarantees.

Experience requirements vary. A program that works for an established builder may have different requirements for a first-time investor.

The Project

Lenders commonly evaluate:

• Property location, intended use, and unit count.
• Land ownership or the purchase agreement.
• Plans, specifications, and a detailed construction budget.
• Zoning, permits, and required approvals.
• The construction schedule.
• The estimated value of the completed property.
• Your plan to sell or refinance when construction finishes.

Confirm that the proposed project and builder are eligible before making commitments that depend on financing.

Loan Amounts and Your Equity Contribution

Construction lenders may use both loan-to-cost and loan-to-value limits when determining the available loan amount.

Loan-to-cost (LTC) compares the loan amount with eligible project costs. Loan-to-value (LTV) compares the loan amount with the property value used by the lender, which may be the appraised value upon completion.

The final loan amount may be limited by either measure, along with other underwriting requirements. Land you already own may count toward your equity contribution, depending on how the lender values it and any existing debt.

Plan for cash needs beyond the required equity contribution, including closing costs, expenses awaiting reimbursement, and contingency funds.

Documentation to Prepare

Requirements vary, but an initial review may include:

• A completed application and credit authorization.
• Asset statements and other requested financial records.
• Business-entity documents, when applicable.
• A summary of completed investment or construction projects.
• A land purchase contract or evidence of ownership.
• Construction plans, specifications, and a line-item budget.
• Builder information and construction contracts.
• Permit status and an estimated completion schedule.
• Projected sale information or rental estimates supporting your repayment plan.

Providing a clear project package helps identify financing questions before construction begins.

Planning for Delays and Cost Changes

Material prices, weather, contractor availability, and permit timing can affect your budget and schedule. Keep contingency funds available and understand how the lender handles changes to the approved project.

Additional work or cost overruns may require your own funds. Changes to plans or budget allocations may also require lender approval before related funds can be released.

Review the loan’s maturity date, extension options, and associated costs. An extension is not automatic, and completing construction does not eliminate the need to repay the loan on time.

Comparing Investor Construction Programs

When reviewing options, compare:

• Eligible property types and project locations.
• Investor and builder experience requirements.
• Loan-to-cost and loan-to-value limits.
• Treatment of existing land equity.
• Interest calculations and payment requirements.
• Closing costs, draw fees, and inspection charges.
• Draw documentation and disbursement procedures.
• Loan term, extension provisions, and any prepayment requirements.
• Personal-guarantee requirements.
• Conditions affecting your planned sale or refinance.

Evaluate how the loan fits the full project—from acquiring the site through repaying the construction balance.

Discuss Your Construction Project

Start with the property location, proposed budget, builder information, and whether you plan to sell or rent the finished property. We can help you explore financing options and understand the information needed for a lender review.

All financing is subject to underwriting, appraisal, builder and project approval, and applicable lender guidelines.