New Construction Loans for Investors

Finding a rental or flip that pencils out is hard in most US markets: inventory is thin, older homes need major work, and good listings sell fast. More investors are skipping the bidding war and building instead. New construction loans for investors make that possible by funding the land, materials and labor in stages, so you can put up a spec home, a build-to-rent property or a small multifamily without paying for it all in cash.

This guide covers how these loans work, the main loan types (hard money construction loans, construction bridge loans, DSCR and construction-to-permanent options), current rates and monthly payment examples, how rules differ across US states and the NYC boroughs, and how to choose among lenders for real estate investors. It ends with answers to the questions investors ask most.

What is a new construction loan for investors?

A new construction loan for investors is a short-term loan that pays for building an investment property from scratch. It can cover the land, the materials and the labor, and it's usually paid off when you sell the property or refinance it into a long-term loan.

Three things set it apart from a normal mortgage:

• Short terms: often 6 to 24 months, just long enough to finish the build.
• Interest-only payments: you pay interest only on the money you've drawn so far, not the full loan.
• Paid out in stages: the lender releases money as construction milestones are completed, not as one lump sum.

How a new construction loan works

The loan follows the build, with money released through a series of "draws." A typical project runs like this:

1. Approval and closing: The lender reviews your plans, budget and builder, then you pay your down payment and closing costs.
2. Land purchase: If the loan covers the lot, that portion is funded at closing.
3. Draws during construction: After each stage (foundation, framing, roof, interior), an inspector checks the work and the lender releases the next payment.
4. Interest-only payments: Each month you pay interest on the amount drawn so far, so payments start small and grow as the build progresses.
5. Exit: Once the home is finished, you repay the loan by selling it or refinancing into a long-term rental loan.

Lenders size the loan using loan-to-cost (LTC): the share of total project cost they'll fund. If a lender offers 80% LTC on a $400,000 project, it lends $320,000 and you cover the other $80,000.

Types of new construction loans for investors

The right loan depends on two things: your exit plan (sell or rent) and what you're building (one house, a townhome row, or a multifamily). Here are the main options US investors use.

Hard money construction loans

These are the most common choice for spec builders. Lenders like Lima One, Kiavi and LendingOne underwrite the project more than your income, offer up to 85-90% loan-to-cost, and pay draws in one to two days. The trade-off is higher rates and fees.

Construction-to-permanent loans

These loans suit build-to-rent investors. The build is financed first, then refinanced into a long-term rental loan, often a DSCR loan, once the home is finished and rented. The Federal Savings Bank describes a typical two-close structure: about 12 months of interest-only payments, then a second closing into a conventional mortgage.

DSCR loans

These loans qualify you on the property's rent rather than your personal income. As theLender explains, a standard DSCR loan usually can't fund construction. Treat it as the permanent "takeout" loan, and plan it before you break ground.

A construction bridge loan

These loans cover the gap after completion. If your spec home is built but hasn't sold, a bridge loan pays off the construction loan and frees up cash for your next project.

Multifamily construction lenders

These handle buildings of five or more units, which fall under commercial lending. Expect more equity, longer timelines and closer review of market rents than with a single-family build.

Note that 2-4 unit properties (duplexes to fourplexes) usually still count as residential, so most hard money construction lenders will finance them.

Rates, fees and monthly payments

In 2026, investor construction loans from private lenders start around 9%, and bank loans run lower but are harder to get. Published starting rates include "as low as" 8.95% at Lima One and 9.00% at Kiavi. LendingOne's own comparison uses 9.95% for its loan against 8.50% for a typical bank.

Expect these costs on top of interest:

• Origination fees (points): usually 1-2% of the loan amount. One point equals 1% of the loan.
• Third-party fees: appraisal (some lenders skip it), title, legal, inspections and draw fees.
• Extension fees: charged if the build runs past the loan term.
• Interest reserve: some lenders set aside part of the loan to cover monthly interest during the build.

What does a construction loan cost per month?

Most investor construction loans are interest-only, and you pay only on money already drawn. So the payment starts small and rises as the build progresses. Monthly interest = amount drawn × annual rate ÷ 12.

These figures cover principal and interest only. Add property taxes, builder's risk insurance and any HOA dues. Your actual rate depends on your credit, experience, leverage and location.

A side-by-side example

LendingOne compares a $450,000 project financed two ways. At 90% loan-to-cost, the builder brings $45,000. At a bank's 75% loan-to-cost, the builder brings $112,500. The private loan costs more in interest, but it ties up far less of your cash, which can raise your return on the cash you put in.

What lenders look for

Lenders are betting on the project as much as on you, so they check both. Expect them to ask about:

• Down payment: usually 10-20% of total project cost, sometimes more for first-time builders. If you already own the land outright, its equity can often count toward this.
• Credit score: private lenders often accept scores around 650; banks usually want higher.
• Experience: requirements vary widely. LendingOne asks for at least one completed ground-up project in the past 36 months, while Lima One will count fix-and-flip or general-contractor experience. First-timers can strengthen an application by partnering with an experienced licensed builder.
• Liquidity and reserves: enough cash for the down payment, monthly interest and cost overruns. Private lenders often check bank statements instead of tax returns.
• A ready site: most lenders fund only "vertical" construction, so the lot must be properly zoned with utilities available. Some, like Kiavi, will close before permits are issued as long as the project is permit-ready.
• Project documents: plans, a line-item budget, a builder contract and timeline, and an appraisal or valuation of the finished home (after-repair value, or ARV).
• A business entity: most investor loans close in an LLC or corporation, so have your entity documents ready.
• Foreign nationals can qualify with some private lenders even without a US credit score, though terms are usually stricter.

New construction loans across the US: states, cities and boroughs

Where you build changes who will lend, how long permits take and what the project costs. Check three things before you commit to a lot.

1. Does the lender operate in your state?

Most national investor lenders cover most of the country, but not all of it. LendingOne says it doesn't lend in Alaska, Nevada, North Dakota or South Dakota. Lima One excludes Alaska, North Dakota, South Dakota and Vermont. Some states, including California and Arizona, require lenders to hold specific state licenses. Look up any lender on NMLS Consumer Access before you apply.

National lenders fund projects in very different markets. LendingOne's recently funded new construction deals include Long Island (North Bellmore and Plainview, NY), Mantua Township, NJ, Fort Lauderdale, FL, Savannah, GA, Chattanooga, TN, Montrose, CO, and Kailua-Kona, HI.

2. How do local rules affect your timeline and budget?

3. Should you use a local lender?

Local banks and credit unions know their area's builders, permit offices and appraisers. Some offer strong terms: Northern Credit Union in northern New York, for example, finances up to 80% and combines the land and construction in one loan, though it requires membership and focuses on homeowners. In dense markets like the NYC boroughs, lenders who regularly fund local ground-up projects understand DOB timelines and inspection-based draw schedules. National private lenders usually move faster and lend more against the project.

Rules change often, so confirm current permit, licensing and insurance requirements with your local building department and an attorney in your state.

Budgeting for construction equipment and supply costs

Your budget is the backbone of your loan application, and construction equipment and supply costs are where it most often goes wrong. Lenders release draws against your line-item budget, so anything you miss comes out of your own pocket.

When you build your budget:

• List construction equipment and supplies separately. Show lumber, concrete, roofing, windows and fixtures as their own lines, plus any equipment rental such as excavators or lifts.
• Get written quotes. Ask your builder or a local construction equipment supply company for current prices instead of guessing.
• Add a contingency. Many investors set aside 10-15% for price increases and surprises.
• Plan for lead times. Order long-wait items early so a late delivery doesn't stall the next draw.
• Don't forget soft costs. Architectural and engineering fees, permits, utility hookups, impact fees, surveys, insurance, property taxes and loan interest all add up, and some lenders won't fund them. Keep your contingency separate from any cash reserves the lender requires.

Financing equipment separately

If you build often and want to own equipment rather than rent it, a construction loan usually won't pay for it. A business term loan or line of credit can fill that gap. For example, Biz2Credit lists term loans from $25,000 to $2 million or more for businesses with a 650+ FICO score and at least $100,000 in revenue, and lines of credit up to $500,000.

A detailed, realistic construction equipment & supply budget also signals to lenders that you know how to manage a project.

How to choose among lenders for real estate investors

The cheapest rate isn't always the best deal. A lender that funds draws slowly or caps leverage low can cost you more in delays and tied-up cash. Most investors choose from four groups.

You may also come across fix-and-flip wholesale lenders, which fund loans through mortgage brokers rather than directly. Many of them also offer ground-up construction programs, so a broker can be a useful way to compare several at once.

When comparing offers, ask each lender:

• What loan-to-cost and loan-to-ARV will you offer on this project?
• Is interest charged only on drawn funds, or on the full loan?
• How fast are draws paid, and how are inspections done?
• What are the points, fees and extension terms?
• Is there a prepayment penalty?
• Can I refinance into your rental or DSCR loan when the build is done?

How to apply for a new construction loan

You'll get a faster, better offer if your paperwork is ready before you talk to lenders.

1. Decide your exit plan: Choosing between selling and renting tells you which loan type to look for.
2. Gather your documents: Have your plans, permits (or permit timeline), builder contract, line-item budget, and proof of funds for the down payment and reserves.
3. Compare at least three lenders: Look past the rate at LTC, fees (points), term length, draw speed and prepayment penalties.
4. Submit and get an appraisal: The lender orders an appraisal of the finished home's value and reviews your builder.
5. Close and start building: Pay the down payment and closing costs, then request draws as each stage is completed.

Pros and cons of building with a construction loan

Building gives you a brand-new property designed for your strategy, but it carries risks that buying an existing rental doesn't.

Downsides of DSCR loans for new builds

DSCR loans are a popular exit for build-to-rent investors, but they have limits:

• They usually don't fund construction. You need a separate construction loan first, then a second closing.
• The refinance isn't guaranteed. The lender re-checks value, rent and your credit at completion, and the numbers may come in lower than you planned.
• Rent must cover the payment. If the appraiser's market rent is low, the loan amount shrinks.
• Higher rates and fees than conventional loans, and prepayment penalties are common.
• Cash-out limits. You may not be able to pull out the equity you created right away.

theLender shows how lenders calculate it: a home renting for $4,500 a month with $3,600 in monthly principal, interest, taxes, insurance and HOA dues has a DSCR of 1.25. Many lenders look for 1.0 or higher, but each program sets its own minimum.

Your next step

You now know how new construction loans for investors work, what they cost, and how lenders and local rules differ across the US. Before you contact a lender, do two things this week: draft a line-item budget with your builder, including every construction equipment and supply cost and your soft costs, and decide your exit. If you plan to rent, run the DSCR numbers on the finished home now. With both in hand, request quotes from at least three lenders, mixing a local bank and a national private lender, and compare them on leverage, draw speed and total cost, not just the rate.

This article is general information, not financial advice. Terms vary by lender and location.

Sources: New Silver, Easy Street Capital, Anchor Loans, Merchants Mortgage.

Frequently asked questions

How much would a $100,000 construction loan cost per month?

On an interest-only loan at 10%, a fully drawn $100,000 costs about $833 a month; at 8%, about $667. Early in the build, when only part of the loan is drawn, you'll pay less. After refinancing into a 30-year loan at 7%, principal and interest would be about $665 a month.

What is the monthly payment on a $300,000 construction loan?

Fully drawn at 10% interest-only, about $2,500 a month; at 8%, about $2,000. Halfway through the draws, expect roughly half that. A 30-year loan at 7% would run about $1,996 a month in principal and interest, before taxes and insurance.

Do you have to put 20% down on a construction loan?

Not always. Banks commonly ask for 20% or more. Private lenders often go lower: with up to 85-90% loan-to-cost, experienced investors may need only 10-15% down. First-time builders should expect to bring more. Owning the land free and clear can also count toward your down payment.

What are the downsides of a DSCR loan?

DSCR loans usually can't fund construction, their rates and fees run higher than conventional loans, and approval depends on the appraiser's rent and value estimates. The refinance isn't guaranteed until the lender re-underwrites the finished property. See the DSCR section above for details.