Financing From Vacant Land Through Completion
A construction loan does not work like a normal mortgage, and the differences matter more than the similarities.
Scope: nationwide. Ground-up construction is business-purpose lending and we broker it across the country, with Eric Figueroa as broker of record. Owner-occupied home loans are available in California only.
At a glance
- Funds
- Released in draws
- Payments during build
- Usually interest-only
- Owner-builders
- Yes. Owner-builders and custom homes are considered.
- Permit window to begin
- 60 days
- Contingency required
- 5% to 15%
- Typical first funding
- 5 to 7 days from the first draw request
How a construction loan works
- Funds
- You do not receive the money at closing. It is released in draws as the work gets done, after inspection.
- Interest
- You pay interest only on what has been drawn so far, and payments during the build are usually interest-only.
- Term
- The loan is short — tied to your build schedule, not to a 30-year horizon — and it is designed to be replaced at the end by either a sale or permanent financing.
That last part is the whole game.
A construction loan is built to be paid off, and if your exit does not happen, you face a maturing loan on a property that may not be earning yet.
We start every construction conversation there.
Who this fits
You are building a spec home to sell.
You are building rental property on land you own or are buying.
You are developing small multifamily or mixed-use product.
You are a commercial investor developing an existing site.
You have held a parcel and now want to build on it.
You are building it yourself. Yes. Owner-builders and custom homes are considered.
This is your first build. No experience is required, though more experience generally means better terms.
Who this does not fit
No credible exit. No realistic sale plan, and no permanent financing available at completion. This is the one that ends the conversation.
Permits that are not in hand and not imminent. We can begin the process where permits will issue within 60 days — but closing waits for issuance, with no exceptions. If entitlements are unresolved or contested, that is an entitlement problem rather than a lending one, and no lender solves it.
No contingency. Overruns are normal, not exceptional. A project with no cushion is a project that stalls.
No liquidity. You fund work before you are reimbursed. Without working capital the draw mechanic does not function, whatever the loan says.
A rural site with thin comparable sales. The appraisal is done subject to completion, against comparables. Where those are scarce, scrutiny rises and the lender pool shrinks.
What gets underwritten
Four things at once.
The project Plans, specifications, permits, entitlements, and a line-by-line budget the lender may adjust if it looks light.
The builder License, insurance, financial capacity, and completed projects. No experience is required, though more experience generally means better terms. Yes. Owner-builders and custom homes are considered.
You Credit, and enough liquidity to cover the down payment, the contingency, and the carrying costs through the build.
The finished value An appraisal “subject to completion,” valuing the property against the plans.
How draws work
Money is released against completed work, never in advance of it. This is the mechanic borrowers most often misunderstand.
Every draw, at every stage
- Work completedYou or your builder pay
- Inspection
- Lien releases
- Funds go outTypically 5 to 7 days
Each draw needs an inspection confirming the work is genuinely complete. Lien releases from contractors and suppliers are required before funds go out. A percentage — 10% — is held back from each draw until the end.
You or your builder pay for the work first and get reimbursed.
You need working capital. Builders who assume money arrives ahead of the work run into trouble in the first month. Draws typically fund in 5 to 7 days.
A typical sequence runs: land at closing, then site work and foundation, framing and roof, mechanical and electrical rough-in, drywall and exterior, interior finish, and a final draw at certificate of occupancy.
- LandAt closing
- Site work & foundation
- Framing & roof
- Mechanical & electrical
- Drywall & exterior
- Interior finish
- Final drawAt certificate of occupancy
What you will need
About the project
- Plans and specifications.
- Permits, or evidence they will issue within 60 days.
- A line-by-line construction budget with a contingency of 5% to 15%.
- An appraisal subject to completion.
About the builder
- The builder's license, insurance and completed projects, or your own plan if you are building it yourself.
- Builder's risk insurance.
About you
- The land purchase contract, or evidence of ownership if you hold it.
- Credit report.
- Bank and asset statements covering the down payment, the contingency and the carrying costs.
- Entity documents if you are borrowing in an LLC.
- Your written exit — sale or refinance.
What happens at the end
At completion
Final inspection, certificate of occupancy, final draw, retainage released, lien releases collected. Then the exit: refinance into permanent financing if you are holding, or sell if it was a spec build.
The take-out is not automatic
We do not place a single loan that converts automatically. Instead we shop a new loan to take out the construction lender — which means a second closing and a second set of closing costs, and also a fresh look at the market at the point you actually need permanent financing rather than a decision locked in before the build started. Budget for it from the outset.
If the exit does not happen, the loan matures anyway. Extensions may be available at a cost and are not guaranteed.
The honest trade-offs
What you get
You get exactly the product you want, at cost rather than retail, and you only pay interest on what you have drawn.
Against that
It costs more than permanent financing, needs substantial equity and liquidity up front, and carries the heaviest documentation load of anything we place. The draw process takes administration and working capital. Delays, overruns, weather, and inspections are normal and all cost money. The maturity date does not move because your project did. And you have to qualify again at the end.
Process and timeline
First funds typically arrive 5 to 7 days from the first draw request. The slowest part is usually assembling plans, permits, and the budget, which is on your side of the table.
Before closing
Scenario analysis
The parcel, the plans, the budget, the builder, and — first — how the finished property gets financed or sold.
Lender analysis
Construction lenders differ sharply on builder requirements and draw administration. Placed from a panel of 20+.
Appraisal to funding
- Appraisal subject to completion
- Budget review
- Closing
- DrawsOngoing
Typical first funding5 to 7 days from the first draw request
Timelines are typical, never promised.
Frequently Asked Questions
Do I get the money at closing?
No. Funds release in draws as work is completed and inspected. This is the single biggest difference from a normal mortgage and the thing first-time builders most often misunderstand.
So I have to pay for the work myself first?
Yes — you or your contractor fund the work and get reimbursed at the next draw. You need working capital, and builders who assume money arrives ahead of the work run into trouble in the first month.
How long does a draw take to fund?
5 to 7 days. This directly drives your cash flow, so build it into your schedule with your contractor.
How many draws are there?
Typically one at closing for the land, then draws at foundation, framing, rough-in, drywall and exterior, interior finish, and a final draw at certificate of occupancy.
What is retainage?
A percentage held back from each draw until the project is finished — ours is 10%. It protects everyone against a job that stops at 95%.
Do I pay interest on the whole loan from day one?
No. Interest accrues only on what has been drawn, so your early carrying cost is low and rises as the build progresses.
What are the payments during construction?
Usually interest-only, which keeps your cash outflow manageable while the property earns nothing.
How much do I need to put in?
Substantial equity plus liquidity to cover the contingency and the carrying costs. If you already own the land, it usually counts toward your equity.
Can I be my own general contractor?
Yes. Owner-builders and custom homes are considered.
What builder experience is required?
No experience is required, though more experience generally means better terms.
What if I go over budget?
You cover it. That is what the contingency reserve is for — ours requires 5% to 15%. The lender is unlikely to increase the loan mid-project, so an underestimated budget becomes your problem at the worst moment.
What if construction runs past the loan term?
Ask about an extension early — a month before, not on the maturity date. It may be available and it costs. The maturity date does not move because your project did.
What happens when the building is finished?
Final inspection, certificate of occupancy, final draw and retainage released. Then the exit: refinance into permanent financing if you are holding, or sell if it was a spec build.
Do I have to qualify again at the end?
Yes. We do not place loans that convert automatically — we shop a new loan to take out the construction lender at completion. That means a second closing and a second set of closing costs, and it also means you are placed against the market as it stands then rather than locked to a decision made before the build started. Budget for it from the outset.
What if my permits are not issued yet?
If they will issue within 60 days, we can begin the process — but the loan cannot close until they are issued. If they are further out than that, or contested, come back when the position is clearer.
Do you finance the land purchase too?
Yes. See also Land Loans if you are buying the parcel ahead of a build.
How long before I get the first funds?
Typically 5 to 7 days from the first draw request. The slowest part is usually assembling plans, permits, and the budget, which is on your side of the table.
Is this available outside California?
Yes. Construction lending on investment property is business purpose and we broker it nationwide. Investor and business-purpose lending nationwide. Owner-occupied home loans in California.
Do you fund these yourselves?
No. We are a brokered business and place the file with the lender whose program fits it.
What happens next
The construction loan has to be replaced. That is not optional, and it is worth deciding now rather than at completion.
The hub this loan belongs to.
You are here
Ground-Up Construction
Financing a build from vacant land through completion, released in draws against completed work.
If the build stalls
Mid-Construction FinancingIf the build stalls or the loan runs out before the work is done.
The take-out
The usual take-out if you are holding the finished property as a rental. Qualified on the rent rather than your income, and available nationwide.
The same take-out where the rent does not fully cover the payment.
The conventional take-out for a home you will live in. California only.
Request a Scenario Analysis
Send the parcel, the plans, the budget and your exit. The exit is the first thing we will test, because it decides everything else.
Nothing on this page or website constitutes an offer of credit, a rate quote, or a commitment to lend. All loans are arranged through third-party lenders and are subject to full application, credit approval, income/asset verification, property appraisal, and underwriting. Terms and availability are subject to change without notice. Loankey.io is a licensed real estate broker; loans are arranged, not made. Investor and business-purpose lending nationwide. Owner-occupied home loans in California.