Ground-up construction offers some of the highest potential returns in real estate, but it also carries the highest risk profile for lenders. 📈 Unlike a standard fix-and-flip where a physical structure stands as collateral on Day 1, ground-up starts with dirt. 🚜

If you want your construction loan approved without endless back-and-forth, here is a look behind the curtain at what direct private money lenders evaluate before wiring funds. 💸

The Pillars of Construction Underwriting 🏛️

• 👨‍💼 Borrower Experience: First-time builders rarely get maximum leverage on ground-up projects. We typically look for at least 1 prior ground-up build OR 5+ successful flips under your belt. If you lack this exact experience, partner with a seasoned General Contractor (GC) who holds a completion guarantee or bring an experienced co-sponsor on board.

• 📊 ARLTV & Land Financing Margins: To get a deal done, you need real skin in the game. We cap construction loans at 70% ARLTV. When it comes to financing the dirt itself, we will cover up to 75% of the land cost if you have permits in hand, but that leverage drops to 60% if the land is unpermitted.

Understanding the Draw Schedule 📝

Private construction loans are disbursed in stages, not upfront.

• 🔄 Reimbursement Basis: You fund the initial phase of work (e.g., site prep, foundation) out of pocket, and receive a draw disbursement to reimburse those costs once verified through our in house team.

• 📋 Granular Line-Item Budgets: Vague budget lines like "Framing & Materials – $100k" will get rejected instantly 🚫. Lenders need itemized costs broken down by labor, specific materials, permit fees, and utility hookups.

Red Flags That Delay Funding 🚨

• ⏳ Underestimating entitlement/permitting timelines (holding costs will eat your profit margin before digging begins).

• ⚠️ Hiring unbonded or under-insured subcontractors to trim costs.

• 💧 Forgetting municipal tap/impact fees for water, sewer, and grid connection.

What is the biggest hurdle you’ve run into when trying to secure private capital for a new build? Drop your questions below and let's break them down! 👇💬