A new construction loan is a short-term financing solution used to fund the ground-up development of a real estate project. Unlike a traditional mortgage, which is underwritten on a finished home, this financing is based on the total project cost and the projected value of the property once it is complete. That forward-looking approach is what makes a construction loan the standard tool for builders and investors putting a shovel in the ground.
This guide is for builders and investors new to ground-up development financing. It explains what a new construction loan is, how the draw structure works, how repayment happens, and how it differs from a traditional mortgage. Ready to fund a project? You can submit a deal and our team will review your plans and outline your options.
What Is a New Construction Loan?
A new construction loan, also called a ground-up construction loan, is short-term, asset-based financing that pays for land and vertical construction rather than the purchase of an existing home. Where a traditional mortgage relies on a completed property and the borrower’s income, a construction loan is underwritten on the build itself: the plans, the budget, the borrower’s experience, and the projected after-completion value. At Forward Motion Lending, our ground-up construction loan program funds both land acquisition and vertical construction so builders can take a project from lot to finished home.
Key Features of a New Construction Loan
- Short-term duration: typically 12 to 24 months, matched to the build timeline.
- Interest-only payments: lower carrying costs while the project is underway.
- Draw-based funding: money is released in stages as construction milestones are met, not all at closing.
- Value-based underwriting: loan sizing considers total project cost and the projected completed value.
- Project-driven requirements: detailed plans, a realistic budget, and a capable builder are central to approval.
How Construction Draws Work
A construction loan does not disburse the full amount at closing. Instead, funds are released through a schedule of draws tied to specific milestones such as foundation, framing, mechanical systems, and interior and final finishes. Before each draw, the lender verifies progress, usually through an inspection, to confirm the work matches the approved scope and budget. This staged process protects the project and keeps capital aligned with what has actually been built, which is very different from a lump-sum mortgage.
How Repayment and Exit Work
At the end of the construction period, the loan is repaid through your exit, typically by selling the finished property or refinancing into long-term financing. A builder who plans to sell recovers capital and moves to the next project; an investor who plans to hold can refinance the completed home into a long-term DSCR rental loan and keep it as a rental. Either way, planning that exit before you break ground is essential.
Construction Loan vs. Traditional Mortgage
The two are built for opposite situations. A traditional mortgage funds a home that already exists, disburses in one lump sum, amortizes over decades, and qualifies the borrower on personal income. A new construction loan funds a home that does not exist yet, disburses in draws, is interest-only and short-term, and qualifies the project on cost, plans, and completed value. One is for living in a finished house; the other is for building it.
How FML Structures New Construction Loans
Forward Motion Lending underwrites around the project, the budget, and the builder rather than tax returns or W-2 income. Here is how our program is structured:
- Loan amounts: $100,000 to $4,000,000
- Leverage: up to 90% loan-to-cost (LTC) and 75% loan-to-after-completion value (LTARV)
- Term: 12 to 24 months, interest-only
- Funding: land acquisition plus vertical construction, released through scheduled draws
- Eligible properties: 1 to 4 unit single-family homes and townhomes
- Eligible borrowers: LLCs, LPs, and corporations
Newer builders can often qualify with an experienced contractor or development partner. For more on pricing structures, see our guide on 0-point vs. deferred-point construction loans, and compare every option across our capital programs.
Selling the Finished Inventory Faster
Building the home is only half the job; selling it without giving away margin is the other half. Once a spec home is complete, builders using BuildersYield improve the buyer’s monthly payment through structured financing instead of cutting the price, which protects the sale price while widening demand. Pairing a disciplined construction loan on the way in with a payment-driven strategy on the way out is how builders hold margin and recycle capital into the next build.
Key Terms at a Glance
- LTC (loan-to-cost): the loan as a percentage of total project cost, land plus construction.
- LTARV / ACV (after-completion value): the projected value of the property once the build is finished.
- Draw schedule: the staged release of funds as construction milestones are verified.
- Vertical construction: the physical building of the structure, as opposed to land and site work.
- Exit strategy: the plan to repay, usually a sale or a refinance.
Frequently Asked Questions
How long does a new construction loan last?
Most are structured for roughly 12 to 24 months, aligned with the build timeline. Forward Motion Lending offers 12 to 24 month terms.
Is the full loan amount disbursed at closing?
No. Funds are released through scheduled draws tied to construction milestones, each verified by the lender before disbursement.
Does a construction loan cover the land?
Our program funds both land acquisition and vertical construction, so the same loan can take a project from lot to finished home.
Do I need personal income to qualify?
No. Approval is project-based, focusing on the plans, budget, builder experience, and projected completed value rather than tax returns or W-2 income.
Can a first-time builder get a construction loan?
Often, yes, particularly when supported by an experienced contractor or development partner. Prior construction experience strengthens an application.
What happens when the build is finished?
You repay through your exit, typically selling the property or refinancing into long-term financing such as a DSCR rental loan.
Ready to Move Forward?
If you have a ground-up project ready to go, a new construction loan can fund the land and the build through staged draws so you can break ground with confidence. Submit a deal and Forward Motion Lending’s team will review your plans and outline your options.
