A ground-up construction loan is a type of loan used to finance the building of a new construction project. The name of this type of loan is derived from the fact that the home or commercial building is being completely built from the ground up.

There are many reasons why someone would choose to get a ground-up construction loan. They may want to buy land with a small mortgage and build a large home, build a new commercial building, or finance a custom-built home. The most important reason someone would choose this type of loan is that there are specific benefits available for people using the loan for construction rather than refinancing.

How Do Ground-Up Construction Loans Work?

A construction loan is a short-term real estate loan. Construction loans are similar to lines of credit in that you only get the money required to finish each phase of the project.

Consequently, you pay interest only on the amount you need to borrow, as opposed to a lump sum loan, in which you accept all the funds available upfront and pay interest on the total.

Ground-up construction loans are offered for particular types of property, including single-family houses, townhomes, 2-to-4-unit properties, and some multi-family homes that are titled or shovel-ready.

Ground-up construction loans for real estate are distinct from mortgages for owner-occupied houses in a few respects. First, this form of financing is a short-term loan, not a 30-year mortgage like housing loans. The loan can be used to pay the costs of building or the acquisition and building of the property. However, since the loan is short-term, you may have to refinance later if you utilize the property as a single-family rental.

A Ground Up Construction loan is an excellent fit for:

  • A contractor that has shovel ready property but requires the money to get the project launched
  • An experienced builder or developer who wants to capitalize on a new project without having to wait for bank financing
  • A repair-and-flip project that includes considerable renovation to the property

What are the Benefits of Ground-Up Construction Loans?

Ground-up construction loans have several benefits when compared to traditional mortgages. They provide the borrowers with more flexibility and lower rates.

Ground-up construction loans can help builders and contractors save time by not having to wait for financing before they start building homes. This offers them the opportunity to start working sooner and provide a better product at a better cost. Other advantages include the possible creation of jobs, providing tax credits, increasing revenue, and allowing buyers to purchase homes faster.

Learn More About Ground-Up Construction Loans Today

If you would like to learn more about ground-up construction loans for your business, call POM (Peace of Mind) Capital & Funding Services at (631) 354-9290 or write to us at [email protected] to schedule a free consultation with our team.

POM Capital & Funding Services is a leading provider of alternative funding solutions for businesses of all types and sizes, offering commercial finance solutions and products to businesses in the Centerport, New York area and throughout the state of New York.