New Construction Loans for Real Estate Investors

A new construction loan is a short-term or hybrid financing option that funds the cost of building a property, including land acquisition (if applicable) and construction expenses. Existing land that is already owned may also be refinanced into a construction loan to help offset closing costs. Unlike traditional purchase loans, new construction loans, like DSCR loans and fix and flip loans, are typically funded in stages as the project progresses. This is commonly referred to as a draw process.

New construction loans, including popular options like DSCR loans and fix and flip loans, are typically disbursed through a series of draws based on completed construction milestones. Funds are released as work is completed and inspected, which helps manage risk and ensures the project stays on schedule. Depending on the loan structure, investors may make interest-only payments during construction with new construction loans, followed by a refinance or automatic conversion into permanent financing after completion.

Purchase / Build Financing

Investors can utilize new construction loans to finance ground-up builds, which encompass land purchase, site preparation, and construction costs. These new construction loans are particularly useful for those looking to invest in real estate developments.

Refinance / Take-Out Financing

After the construction is complete, investors may opt to refinance into long-term financing options such as DSCR loans. This approach helps stabilize payments, enhance cash flow, or prepare the property for rental or sale, making it a strategic choice for those involved in fix and flip loans as well.

Financing for ground-up construction is available through various options, including New Construction Loans. These loans feature a draw-based funding structure and often include interest-only payments during the construction phase, depending on the program. Short-term options are also available, along with flexible exit strategies such as selling, refinancing, or holding the property. This financing is specifically designed for investment properties, not primary residences, making it a great fit for those utilizing Fix and Flip Loans or DSCR Loans.

New construction loans are commonly utilized by: Real estate investors building rental properties, developers constructing single-family or small multi-family projects, investors planning to refinance after stabilization, and borrowers seeking flexible underwriting for investment builds, including those interested in DSCR loans and fix and flip loans.

While requirements vary by program, lenders typically review: 

- Construction plans and project scope, especially for New Construction Loans 

- Budget and cost breakdown relevant to Fix and Flip Loans 

- Borrower experience or project support that may influence DSCR Loans 

- Credit profile and reserves to assess financial stability 

- Exit strategy after construction completion, ensuring a clear plan for loan repayment.

For Purchase Transactions:

• Full property address of the property you intend to purchase or refinance
• The purchase price you will offer
• Estimated construction budget and brief overview of the scope of work (number of units, bed/bath counts, garages, stories, etc...)
• Expected ARV once construction is completed
• Timeline to complete the construction
• How title is to be held (individual, entity, or trust)
• Borrower's experience level and exit strategy (sell or refinance to hold as a rental)
• Borrower's estimated FICO scores
• Borrower's current liquidity available

For Refinance Transactions:

• Full property address of the property you intend to refinance
• The land purchase price and date of original acquisition
• Amount spent on land improvements since acquisition, if any
• Current Debt owed on the property
•  Estimated construction budget and brief overview of the scope of work (number of units, bed/bath counts, garages, stories, etc...)
• Expected ARV once construction is complete
• Timeline to complete the construction and have COs issued
• How title is currently held or will be held at closing (individual, entity, or trust)
• Borrower's experience level and exit strategy (sell or refinance to hold as a rental)
• Borrower's estimated FICO scores
• Borrower's current liquidity available

For Mid-Construction Transactions, we'll need all the same information as a refi but also:

• Estimated AS IS value of the property, as it sits now
• Amount of the construction budget spent so far
• Amount of the construction budget remaining to complete
• Detailed narrative to why the project is incomplete
• Current photos or videos of the project as it currently sits

Please visit our comprehensive FAQ page for more information on DSCR Loans, Fix and Flip Loans, and New Construction Loans, or complete our Quick App to get your quote started now.