How to Use Construction Loans to Get 100% Financing on Your Next Deal

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Every week someone approaches me that is dying to grow their real estate business.  However, they have used all of their cash in property improvements and down-payments.

With little cash, they seem helpless.  However, they are still wanting to continue to grow. There are a million strategies gurus try to sell, however, I’m here to tell you the hard-truth: they rarely work and get-r-done.

There are two primary way’s to get 100% financing and I’m going to focus on the most popular one: construction loans.

It’s funny, there are a ton of flippers on BiggerPockets and a ton of people like me who buy distressed properties, fix them-up and then rent them out. Most people don’t know exactly how a construction loan works, even though they are very popular types of loans.

For simplicity sake, I’m just going to cover how a construction loan would work if you were building the house for yourself.

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A Step by Step Guide to Obtaining a Construction Loan

Before you even approach a bank, please have a deal that you are about to do.

What you need to have before you even approach a bank is:

  1. Contract for lot
  2. Blueprints
  3. Construction cost estimates
  4. Qualifications of the GC (General Contractor)

Once you have all of the available information, have your personal (and/or business) tax returns and all other appropriate financial statements they request.

It is best to have already calculated your mortgage payment on the costs and to show how easy it will be for you to pay this.

A big sticking point with banks is lending 80% to cost or 80% to appraised value.  Obviously the latter is preferable.  These banks aren’t impossible to find, but you will probably need to do some legwork to find them.

You pay interest only on the outstanding amount though-out the construction period.

After each draw, someone will go out and physically inspect the work has been done.  There is usually a nominal fee for this.


The closing of the construction loan is obviously important.  Construction loans generally have a 1-year maturity with the understanding that after 1 year, the loan will be closed due to you selling the property (speculative construction) or you closed the loan and the loan is now a mortgage in the secondary market.

If you utilize a construction loan for speculative construction and didn’t sell the house within the one-year maturity, you will probably have to take out a new loan under investor terms (20-year amortization, etc).

There are a lot of details I’m sure I left off and as always, every lending institution is different, so be sure to do you due diligence. If you have anything to add I would love to hear about it in the comments.

Photo Credit: photosteve101

About Author

Jimmy Moncrief is a bank underwriter and real estate investor. He blogs at where he talks about all things real estate. He also is the creater of free evernote templates for BiggerPockets members to learn how to better organize and automate their real estate investing.


  1. Jimmy – Quick question…

    If this is an option for 100% financing, would you only be able to achieve that if the bank agrees to a loan equal to 80% appraised value, which would be greater than 100% of price-tag?

    Very useful article, thanks!

        • I’m a bit confused with this as well. So are you saying you need to find a bank that will lend 80% of the ARV, and if that number is greater than the total purchase price plus rehab cost number, then you will have in essence a 100% loan?

          What do you mean when you say, “if you get a 80% loan to appraised value – the trust cash-required for your 80% LTV can be managed to $0?” Are you equating appraised value to more of an ARV appraisal? And what is “trust cash”?

  2. Don’t mean to throw a monkey wrench into your blog but I can tell you as a builder getting a construction loan is a small part of making a profit. It’s just not that simple!

  3. Just visited a lender today that doesn’t do 203ks because of how lengthy they are. Instead, they will provide a construction loan. What are the advantages and disadvantages of 203k versus construction. I’d been focusing on securing a MF with FHA with the intention of owner occupant. 203k would help with repairs and updates but from what I understand FHA doesn’t allow you to refinance until a year after your initial purchase whereas the construction loan would? Maybe? Its a new thing I’m highly confused about. The lender, not having worked with many investors, had trouble explaining it as well.

    • Steve

      Great question! I’m going to be completely honest and 203K loans are not my expertise because they are secondary mortgage products.

      I underwrite loans that are kept in-house.

      I would strongly suggest you talk to a community banker that can be flexible with your situation. Call a couple of small community banks and ask to speak with the commercial loan officer.

  4. “…have your personal (and/or business) tax returns and all other appropriate financial statements they request.”

    That also means coming up with a perfect or close to perfect FICO and a personal guarantee.
    Good luck if you’re a seasoned investor that has taken a few hits.

    Full-doc is a no-brainer guys. Anyone who wouldn’t have already taken advantage of the bank knowing this is either novice or a fool.

    Now, find us a bank that will lend based on equity and no-doc and then we’ll have something of value to talk about!

  5. For short-term, interest-only loans, your best bet is Private Money. The seasoned investor can put up his existing real estate as collateral. The lender only looks at the deal and your ability to make the monthly payments.

  6. I specialize in zero down construction loans and 80% financing on Land Loans. I can finance up to 100% of your Construction Costs as long as you have 20% future equity in the project or equity in the land. For example, if your project costs are $360,000 but your project is appraised for $432,000, you do not need to bring any money down to the table because we use the equity in future value as your down payment. People are always amazed at our programs! No origination or fees, one time close loan, nationwide lender. Feel free to call me anytime to discuss. Eduard Gubarik(916) 223-4257?Land & Construction Loan Guy”

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