We have to start off by clarifying that 100% financing for construction projects would never include the land purchase. There is absolutely no way any private money or hard money lender would ever provide 100% of the land purchase plus 100% of the construction costs. That would not make any sense to a lender.
It’s only possible to get 100% financing on the vertical construction costs. So you have to already own the entitled land and have approved building permits in hand, which most lenders refer to as “shovel-ready”. And some lenders will require that the foundation be poured before they fund the loan.
Only a small percentage of private lending companies offer 100% financing for ground-up construction projects. The ones that do so only consider:
- Residential Investment Properties
- Single Family Residence (SFR)
- Multifamily up to 10 Units
- SFR Developments (multiple homes)
- Located in a major metropolitan area
- No rural areas
100% LTC construction financing is not for commercial real estate or specialty properties. It’s not for cabins or tiny homes that are going to be operated like a hotel. And it’s not for a home that you plan to occupy. Even if you’re building a fourplex where you plan to live in one unit and rent out the other three. That would be a consumer purpose mortgage which private lenders do not consider.
Requirements to Get 100% LTC Financing for Ground-Up Construction
There are several other requirements for getting the maximum leverage on construction financing. First, you must have strong financials and liquid cash. Credit score is important, even to private money and hard money lenders. Some have a minimum of 650, and some require the borrower’s FICO score to be over 700. Besides good credit, you’ll need cash reserves in case the project goes over budget, because the lender will not increase the loan amount before the end of the loan term. The reserve amount varies by lenders, but it could be anywhere from 10% to 20% of the construction budget.
The next requirement is experience with construction projects. If you have not developed at least one property in the past three years, it will be difficult to find a lender, especially for 100% financing. Some lenders make exceptions, but it’s rare. You could make a case if you hire a reputable general contractor as well as a construction consultant to guide you through the entire project. Even then, lenders may want to at least have experience with rehabbing properties.
Why Private Construction Lending Has So Many Requirements
Ground-up construction lending is very risky for lenders. They don’t want to take over your project if you default on the loan. The thinking is that if you have a lot of equity invested in the project, you won’t default on the loan and won’t walk away from it prior to completion.
You may be wondering what amount most private construction lenders will fund, if not 100%. We have a separate guide to cover the typical guidelines for private construction financing, but here’s the short version:
75% percent loan-to-cost is the maximum for most lenders. So you contribute 25% of the construction budget with your own cash, or using equity in another investment property. Some lenders will also fund the land acquisition along with the construction loan, but only up to 50% of the purchase price.
Exit Strategy for Private Construction Loans
Regardless of whether the lender funds 100% or 75% of the construction costs, the key concern for any short-term loan is a solid exit strategy. The preferred exit is for the developer to sell the property upon completion, but we’ve seen an explosion in build-to-rent projects starting in 2019 due to record low interest rates. Construction lenders have accepted the rental strategy because there have been many financing options for residential rentals the past 3 years, and lenders have had confidence that their construction loan will be refinanced. Some developers even build properties to become vacation rentals, and that too has been accepted as an exit. However, at the time of this recording in June 2022, interest rates are rising, and it’s getting tougher to qualify for long-term rental loans.
The rising interest rate environment will have a major effect on construction lending, and the 100% loan-to-cost program may not be available when the market turns. We believe many lenders will stop offering ground-up construction loans entirely, and the ones that continue to offer them will likely become more conservative. For now, the key takeaway from this guide is that if you find a lender that will consider funding 100% of your construction project, you need to have strong financials, lots of liquid cash, and some experience with real estate development.
How to Find Private Construction Lenders
If you’re looking for a private lender to fund a residential or multifamily ground-up construction project, use our website as a resource.
Option 1: Browse Lenders
- Start at the Residential Construction Loan page
- Type in a state or major metro area, and click SEARCH
- Click REFINE RESULTS if you want to filter the list
- View each lender’s profile to learn about their guidelines, pricing, and much more
- Click the green CONTACT button and reach out to the lender directly
There is no fee to search for lenders and make contact with them directly. Please remind each company that you found them on PrivateLenderLink.com.
Option 2: Create a Loan Request
Fill out a questionnaire with information about your financing needs. You can then browse lenders and invite a few of them to view your deal. Or ask us for recommendations; we’ll review it and invite a few select lenders that we feel may be a good fit.
Featured Lenders Offering 100% LTC for Ground-Up Construction Projects
Rehab Financial Group (RFG) is a direct private lending firm that offers 100% LTC financing for ground-up construction projects in 35+ states. Here are some of their lending guidelines:
- Property Location: 37 States – AL, CO, CT, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, ME, MD, MI, MA, MO, MS, MT, NH, NJ, NM, NY, NC, OH, OR, PA, RI, SC, TN, TX, UT, VA, WA, WI, WV
- Loan Amounts: $50K to $1M
- Land LTP: 0% – We do not offer land purchase money
- Land must be purchased in advance, have a foundation poured with permits approved for building
- RFG may refund the cost of the foundation as part of the total loan subject to appropriate ARV limit
- Experienced builders may qualify for refund of land purchase price
- LTC: Up to 100% of construction costs
- Maximum Loan-to-Completed Value: 65% LTCV for credit scores over 700.
- If credit score is under 700, the max LTCV is 60%
- Can go higher but Borrower must have the funds to offset the overage
- Experience Required: 1 verifiably completed ground up within the most recent 12 months
- Interest Rates: 9.99% to 14.99%
- Origination Fee: 2 to 4 points
- Loan Term: 8, 12, or 18 months
- No prepayment penalty
- Property Types: SFR, Condo, 2-4 Units, Small Multifamily, Mixed-Use
- Cash Requirements: Need to cover closing cost and have cash reserves
- Credit Score: 620 minimum FICO score
Land must be purchased in advance, have a foundation poured with permits approved for building. RFG may refund the cost of the foundation as part of the total loan subject to appropriate ARV limit. Experienced residential property builders may qualify for refund of land purchase price.
We have had a relationship with RFG since 2015.