Ground-up builds, major renovations, and build-to-rent, financed in stages and inspected at each one. The strongest structure is construction-to-permanent: one closing, one set of costs, converting to a long-term mortgage when you get the certificate of occupancy.
Below: single-close versus two-close, how draws and inspections actually run, what happens if the build goes over budget, and a calculator for total project cost including the interest you'll carry during construction.
Ranges reflect common guidelines across the lenders we work with. Agency, non-QM, and DSCR construction programs differ substantially. Not an offer.
This is the first real decision, and it's worth more than a quarter point of rate. Single-close locks your permanent financing before ground breaks. Two-close leaves it open, which is either flexibility or exposure depending on where rates go.
One set of closing costs, one underwrite, one appraisal. The loan converts automatically to a permanent mortgage at certificate of occupancy. Your permanent rate is set — or capped — before construction starts.
A short-term construction loan, then a separate permanent mortgage at completion. More flexibility on the back end and sometimes better construction-phase leverage, but you requalify at the end.
For a primary residence, single-close is usually the right answer — requalifying after twelve months of construction, with a year of unpredictable income and rates behind you, is a risk with no upside. For investors building to rent, a construction loan followed by a DSCR refinance is often better, because DSCR underwriting uses the finished property's rent rather than your personal income.
Land plus hard costs is where most people stop. The real number includes soft costs, a mandatory contingency, and the interest you pay on a balance that climbs every month you're building.
Construction interest assumes the balance ramps evenly to full draw over the build period, so it's charged on an average of half the financed amount. Real draw timing shifts this.
Illustration only. Actual leverage is set against the as-completed appraisal, not against cost, and may be lower than shown. Not a quote or commitment to lend.
A typical build releases funds in five or six draws tied to verifiable milestones. Percentages vary by lender and by project, but the sequence rarely does.
Every one of these is a time problem in disguise, and time is the most expensive input in a build.
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Have the plans, the budget, and your builder's name ready — that's enough to tell you what's fundable.
Talk it through →Usually yes, and it's one of the best features of construction financing. Owned land counts as equity toward the required contribution, sometimes covering it entirely. The lender uses appraised value, not what you paid — so land bought years ago at a low basis can contribute far more than its purchase price. If there's an existing lien on the lot it typically gets paid off through the construction closing.
Rarely, and it's the most common reason a construction request gets declined outright. Nearly all lenders require a licensed, insured general contractor with a verifiable track record, because the lender's collateral is a half-finished house if the build stalls. Owner-builder programs exist but are limited, expensive, and generally require you to hold a construction license yourself. If you're planning to self-manage subcontractors, tell us before you go far — it changes which lenders are even possible.
The contingency reserve absorbs the first overrun, which is exactly why lenders require one. Past that, a change order needs lender approval, and if it increases the loan amount the file may need re-underwriting and a revised as-completed appraisal — which takes weeks while your crew waits. Overages beyond the contingency generally come out of your pocket, because the loan can't exceed the completed-value ceiling. Build the contingency at ten percent even when the lender only requires five.
During construction you pay interest only on what's actually been drawn, so the payment starts small and grows with each draw. Full principal-and-interest payments begin when the loan converts at certificate of occupancy. Budget for the overlap: on a primary residence you're usually paying rent or an existing mortgage at the same time as a rising construction interest payment, and the last three months are the heaviest.
Yes, and the structure differs from an owner-occupied build. Investor construction typically requires more down and prices higher, then exits into a DSCR loan underwritten on the finished property's market rent. Plan both ends before closing the construction loan: run the projected rent against the projected permanent payment, because a build that pencils on cost can still fail the ratio test at completion.
It depends on scope. Additions, structural changes, and gut renovations are usually financed as construction, with the same draw and inspection process. Cosmetic work on a property you intend to sell fits fix and flip financing better and closes far faster. The dividing line most lenders use is whether the work requires permits and touches structure, mechanicals, or the footprint.
The calculator above totals land, hard and soft costs, contingency and the interest you'll carry. When the budget is real, apply through Edge Home Finance — or call and we'll work out whether single-close or two-close serves you better.