Building from the dirt up is a different animal than buying an existing property, and the financing has to match. I’ve watched investors try to fund a new build with the wrong loan — a standard purchase mortgage, or even a rehab loan — and run straight into a wall, because none of those products are designed to release money in stages as a structure rises out of the ground. Ground-up construction loans are. They fund land, materials, and labor through a draw schedule that tracks the build, so the money shows up when each phase is ready to pay for. Tidal Loans has financed builders and investors since 2017, and this page walks through how these loans actually work.
A ground-up construction loan is short-term financing for building a new structure from scratch on a vacant or cleared lot. It’s underwritten around the project — the land, the plans, the budget, and what the finished property will be worth — and it disburses in milestones rather than in one lump sum. For investors developing spec homes, infill projects, or small multifamily, it’s the financing built for the job.
What Is a Ground-Up Construction Loan?
A ground-up construction loan funds the creation of a brand-new building, covering the costs of construction as they’re incurred rather than handing you the full balance at closing. It’s also called new construction financing or a build loan. The structure is what sets it apart: instead of a single disbursement, the lender funds the project in a series of draws tied to completed stages of work. Investopedia’s overview of construction loans describes the same staged-funding model that defines the product.
These loans are short-term by design, typically running twelve to twenty-four months to match a build timeline, and they’re meant to be replaced by permanent financing or paid off by a sale once the structure is finished. Like other investor financing, they’re business-purpose loans secured by the real estate, so you can close in an LLC and the underwriting centers on the project rather than your personal paystubs. Interest usually accrues only on the funds actually drawn, not the full loan amount, which keeps your carrying cost down in the early months when little has been disbursed.
Because you’re financing something that doesn’t exist yet, these loans lean more heavily on planning than any other product we offer. The plans, the permits, the budget, and the builder all matter — and that’s exactly as it should be.
How Ground-Up Construction Loans Work
Two numbers drive most construction loans. The first is loan-to-cost, or LTC — how much of the total project cost the lender will fund, often a large majority, with you covering the rest through land equity or cash. The second is loan-to-after-completion-value, or LTV against ARV — the lender also checks that the loan stays within a comfortable percentage of what the finished property will be worth. The deal has to pencil out on both measures.
The mechanics run on the draw schedule. Rather than releasing all the money at closing, the lender disburses funds in stages as construction hits defined milestones — foundation, framing, mechanicals, drywall, finish work, and so on. Before each draw, an inspection confirms the work is actually complete, and then the funds release. You typically pay interest only on the balance drawn so far, which means your early payments are small and grow as the project progresses. To sketch the numbers on a specific build, our construction loan calculator lets you model the loan amount, draws, and carry before you call.
That staged structure protects everyone. It keeps the project funded in step with progress, it prevents money from getting ahead of the work, and it gives both you and the lender a clear, milestone-by-milestone view of the build.
What Investors Build With These Loans
The most common project we fund is the spec home — building a single-family house to sell on completion. The construction loan funds the build, and the sale is the exit. It’s the new-construction cousin of a fix and flip; the difference is you’re creating the property instead of renovating one, but the investor and the playbook are often the same.
The second is infill and teardown development, building on a vacant urban lot or replacing an outdated structure with something far more valuable. The third is build-to-rent, where investors construct a property specifically to hold as a rental and refinance into a long-term DSCR loan once it’s complete and leased. And the fourth is small multifamily construction, building a duplex, triplex, or small apartment building — projects that often graduate into our multifamily lending program as they scale in size.
Ground-Up Construction Loan Requirements
New construction asks more of the borrower than any other short-term loan, and for good reason — you’re financing a plan, not a finished asset. Here’s what we weigh.
Experience carries real weight here. Builders and investors who’ve completed ground-up projects before get the strongest terms, because execution risk is the biggest variable in any construction deal. First-time builders aren’t shut out, but we look more closely at the team — especially the general contractor — and the plan.
The project package matters: architectural plans, a realistic and detailed construction budget, the permits or a clear path to them, and a timeline. A tight, credible budget tells us you understand the build; a vague one is a red flag.
Land and equity are part of the structure. You’ll generally bring the lot — owned outright or being acquired as part of the deal — and some cash, which sets your loan-to-cost. Credit is reviewed and stronger credit improves pricing, though the project and the team drive the decision more than your score does.
And as always, the exit has to be clear — a sale on completion, or a refinance into permanent financing such as a DSCR loan for a build-to-rent hold. We underwrite that exit before we fund, because a construction loan without a defined payoff is a project without a finish line.
Ground-Up Construction vs. Fix and Flip
These two products serve the same kind of investor at different points on the development spectrum. A fix and flip loan renovates an existing structure; a ground-up construction loan creates a new one. Fix and flip draws fund a rehab budget against after-repair value; construction draws fund a build against after-completion value and a far more detailed milestone schedule. Construction is the more involved of the two — longer timeline, more moving parts, heavier reliance on plans and permits — but for many of our borrowers it’s the natural next step once they’ve cut their teeth on rehabs and want to control the entire product from the foundation up.
How Construction Loans Get Paid Off
Every ground-up loan ends one of two ways. If you’re building to sell, the sale of the finished property pays off the loan and books your profit. If you’re building to hold, you refinance the construction loan into permanent financing once the property is complete and, for a rental, leased and stabilized — most often a DSCR loan that qualifies on the new property’s rent. In some cases a bridge loan carries the project through the gap between completion and permanent financing, especially if leasing or final inspections take time. We map the exit at the start so the whole structure points cleanly at the finish.
Applying With Tidal Loans
As a direct lender, we fund our own construction loans and manage the draw process in-house, which keeps inspections and disbursements moving so your build never stalls waiting on money. The process starts with the project package: the lot, the plans, the budget, the builder, and your exit. We’ll review the numbers and give you a real quote on your scenario. From there, we set the draw schedule, and as each milestone is completed and inspected, funds release on time.
What builders tell us they value is a lender that understands construction — one that reads a budget critically, sets a realistic draw schedule, and doesn’t slow the job down at every stage. We’d rather get the plan right at the start than fight problems halfway through framing.
Why Investors Choose Tidal Loans
Tidal Loans has financed real estate investors and builders since March 2017 as a Houston-based direct lender working nationwide. Our founder, Cheta Ozougwu, built the firm around investor financing, and construction is one of the areas where that focus matters most — we understand draw schedules, contractor risk, and the difference between a budget that’s been thought through and one that hasn’t. We’ve funded spec builders, build-to-rent investors, and small multifamily developers, and much of our business comes back to us project after project.
Ground-Up Construction Loans by State
Building costs, permitting timelines, and lot availability vary enormously from one market to the next, so we maintain dedicated construction resources for the states we’re most active in. As those state pages go live they’ll be linked here, covering local conditions across markets like Texas, Florida, Georgia, Tennessee, Louisiana, Ohio, and beyond. If you’re planning a build in a specific state, reach out and we’ll quote the project directly.
Frequently Asked Questions
How are funds released on a ground-up construction loan? Funds are released through a draw schedule rather than all at once. The lender disburses money in stages tied to completed milestones — foundation, framing, mechanicals, finish work — and an inspection confirms each stage is done before that draw releases. You typically pay interest only on the funds drawn so far, so your early payments are small and grow as the build progresses and more of the loan is disbursed.
Do I need construction experience to qualify? Experience helps and gets you the best terms, because execution is the biggest risk in any build, but first-time builders can still qualify. When a borrower is newer to ground-up construction, we look more closely at the project package and especially the general contractor, since a strong, experienced builder reduces the risk. A detailed budget, proper plans, and clear permits go a long way toward making a first project fundable.
What’s the difference between a construction loan and a fix and flip loan? A fix and flip loan renovates an existing structure, while a ground-up construction loan builds a new one from the ground up. Construction loans rely on detailed plans, permits, and a milestone-based draw schedule, and they generally run longer because building takes more time than renovating. Both are short-term investor loans that exit through a sale or a refinance, but construction is the more involved of the two.
How long do ground-up construction loans last? Most run twelve to twenty-four months to match a typical build timeline, with the exact term set to fit your project’s scope and schedule. They’re short-term by design and meant to be replaced once the structure is finished — either paid off by a sale or refinanced into permanent financing. We set the term with some realistic margin so the build has room to reach completion without scrambling against the clock.
Can I use a construction loan to build a rental property? Yes. Build-to-rent is a common use: you finance the build with a construction loan, then refinance into long-term financing such as a DSCR loan once the property is complete and leased. The DSCR refinance qualifies on the finished property’s rental income rather than your personal income, which makes the transition from construction to a permanent hold clean and predictable for buy-and-hold investors.