Building from scratch is the part of real estate that sounds scary until you break it into steps. Then it is just a very large to-do list with a lot of paperwork.
This guide walks through how a ground-up construction loan works for investors in Texas, what you need, and where people trip.
What a ground-up construction loan is
A ground-up construction loan finances building a new structure on a lot. Instead of handing you the full amount at closing, funds are released in stages as the work gets done.
This is a business-purpose investor loan. It is for builders and investors who plan to build and sell, or build and hold. It is not for a home you will live in.
Here is what our program looks like:
- No experience needed. First build or fiftieth, we look at the project.
- Lot value counts. If you own the lot, its value counts toward your cash to close.
- Closes in 3 to 5 days.
Why the lot matters
If you already own the land, that is a head start. The value of the lot counts toward your cash to close, which can reduce what you need to bring to the table. Own it free and clear, and you are in a stronger spot than most.
If you do not own a lot yet, we can talk about buying and building together. Send me the address.
What lenders want to see
Even with a fast close, a construction loan needs a clear plan. Be ready with:
- Plans and specs. What are you building, how big, what finishes.
- A budget. Line by line, labor and materials. This is your rehab budget’s bigger sibling.
- A scope of work. What gets done, in what order.
- A realistic timeline. Optimistic is fine. Fantasy is not.
- An exit strategy. Selling the finished home, or holding it as a rental, possibly with a DSCR refinance after.
- Entity documents, if you are borrowing through an LLC.
How draws work
Construction funds are released through a draw schedule. A typical project might be broken into stages such as foundation, framing, rough-in, drywall, and finishes. When a stage is complete and verified, the next draw is released.
What this means for you:
- You need enough cash flow to cover costs between draws.
- Your contractor needs to be comfortable with the process.
- Communication matters. A call a week early beats a problem a week late.
Budget for the boring stuff
Good construction budgets include more than lumber and labor. Remember:
- Permits and impact fees
- Utility connections
- Survey and engineering
- Insurance during construction
- Interest carry while you build
- A contingency. Ten percent of the budget is a common cushion, and it is cheaper than a surprise.
Texas-specific things to keep in mind
Texas is a great state to build in, but it has its quirks.
- Soil and foundations. North Texas clay is famous for moving. Get a geotechnical report and a foundation design that fits it.
- Permitting varies by city. Dallas, Fort Worth, Frisco, and smaller towns each have their own timelines and rules. Ask early.
- Weather. Spring rain and summer heat both affect schedules. Pad the timeline.
- Utilities. Some lots need septic or well work. Know before you buy.
Build and sell, or build and hold
Some borrowers build to sell. You finish, list, and pay off the loan with the sale.
Others build to hold. After the home is complete and rented, you can move into long-term financing. A DSCR loan qualifies you on the property’s rent, goes up to 80% LTV, and can be closed in an LLC.
Thinking about the exit before you break ground makes the whole project cleaner.
Common mistakes
Underestimating the timeline. Builds take longer than the spreadsheet says.
Skipping the contingency. Every build has surprises.
Choosing a contractor on price alone. The cheapest bid can become the most expensive one.
Building what you like instead of what sells. Check what buyers in that area actually pay for.
Is it right for you?
If you have a lot, a plan, and a reliable builder, there is a good chance we can make this work quickly. If you are earlier than that, we can still talk through the numbers before you commit.
Next step
Text me at (817) 697-4281 or tap See what I qualify for. Tell me where the lot is and what you want to build. I will tell you how we would structure it.
Néstor Caussade, NMLS #1538512, DFW Mortgage Pros
