Get A Hard Money Construction Loan To Build A House — The Quick Read: A hard money construction loan funds a ground-up build in stages, not one lump sum, and it’s underwritten around the project itself — the land, the budget, the contractor’s track record, and the finished value of the house — rather than a paycheck. For an investor building a rental, this is a business-purpose loan, reviewed under different rules than a loan for a personal residence. Leverage across the hard money space commonly reaches up to 90% on many program types, loan sizes typically run from around $100,000 to $60,000,000, and the loan is almost always short-term and interest-only until the house is finished and ready to refinance or sell.
Key Terms Defined
Hard money loan — a short-term loan secured mainly by the property and the deal’s economics rather than the borrower’s income, funded by private capital rather than a bank.
What this loan actually costs to carry in your market.
Hard money is priced by time, not by coverage. Enter the deal and see the cash required at closing, the carry while you hold it, and what is left at the exit.
Top leverage tiers are reserved for experienced investors with a documented track record; the rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Deal estimate
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors. Leverage tops out near 90% of purchase for experienced investors, with rehab funding up to 100% of the documented budget; actual terms vary by lender, borrower experience, property, and exit. Hard money is not priced off the conforming mortgage curve, so this rate is a market-typical assumption rather than a published index.
Draw schedule — the payment plan that releases construction funds in installments as specific phases of work get finished and inspected.
As-completed appraisal — an appraisal that values the house based on the finished plans and specs, before construction starts, so the lender knows what the collateral will be worth once the build wraps.
Loan-to-cost (LTC) — a ratio comparing the loan amount to the total project cost (land plus hard and soft construction costs), rather than to the finished value.
Builder’s risk insurance — a temporary policy covering a structure while it’s under construction, since a standard landlord or homeowner policy won’t cover an active job site.
Business-purpose loan — a loan made for an investment or income-producing purpose rather than the borrower’s own residence, which changes how it gets underwritten.
General contractor (GC) of record — the licensed contractor formally attached to the loan and construction contract, whose track record the lender underwrites alongside the borrower’s.
Takeout loan — the permanent financing, usually a DSCR loan for a rental, that pays off the construction loan once the house is finished and ready to rent.
What Investors Need to Know First
- Funds release in draws tied to inspected progress, not as one check at closing.
- Underwriting centers on the project and the GC’s experience, not personal income or traditional personal-income documentation.
- Leverage across the hard money network commonly runs up to 90% on many program types, with loan sizes typically from around $100,000 to $60,000,000.
- Builder’s risk insurance is a closing condition, and it has to convert to a standard landlord policy the moment the certificate of occupancy is issued.
- Most investors don’t hold this loan long-term — the plan going in is a refinance into permanent rental financing once the house is finished.
What a Hard Money Construction Loan Actually Is
A hard money construction loan is short-term financing that pays for building a house from the ground up, secured by the land and the improvements as they go in rather than by a finished, appraised home. Unlike a bank construction loan, it’s typically written for investors and business entities, not owner-occupants, and it’s priced and underwritten around the deal rather than around a W-2.
Because there’s no finished house to lend against on day one, the lender weighs two figures together: what the project costs to build, and what the house should be worth once it’s finished. Exactly how a given lender balances those two numbers — and where it caps each one — varies by lender, market, and borrower experience. There’s no single industry-wide percentage that applies to every deal, so treat any specific loan-to-cost or as-completed figure someone quotes as lender-specific until it’s confirmed on an actual term sheet.
National cost data set a useful reference point for the underlying budget. The National Association of Home Builders’ most recent national builder survey found the average construction cost of a typical single-family home running $428,215, or about $162 per square foot — the highest figure in the survey’s history (NAHB). That’s a national average, not a plug-and-play number for a specific lot, but it’s the kind of figure lenders and appraisers use to sanity-check a submitted budget.
Across the hard money side of Lendmire’s wholesale network, loan amounts for this kind of collateral — residential investment property, including ground-up construction — typically range from around $100,000 to $60,000,000, structured most often as short bridge financing of roughly 6 to 12 months, though select lenders in the network offer 2-, 3-, or 5-year options with interest-only structures during the build. Leverage on many hard money program types tops out near 90% for experienced, well-qualified borrowers, though ground-up construction runs on that blended cost-and-value basis rather than a single flat percentage, and every file gets underwritten individually. For a deeper look at how these programs are structured across the network, Lendmire’s guide to hard money residential construction loans walks through the collateral types and use cases in more detail.
Is This Loan Right for You, or Do You Need Something Else?
Not every house being built is going to be a rental, and the loan that fits a landlord doesn’t fit a family building the place they plan to live in. Sorting that out before applying saves weeks of wasted effort.
Hard money construction loans for rental property are designed for non-owner-occupied, income-producing real estate. Because they’re business-purpose loans, they get reviewed differently than a construction loan for a borrower’s own home — underwriting leans on the project and the contractor rather than on personal debt-to-income. Lending secured by real estate held for rental or investment is generally treated as business-purpose credit rather than consumer credit (Doss Law), and that classification is what allows hard money and DSCR lenders to underwrite around the property rather than around a borrower’s paycheck.
Anyone building a house to occupy as their primary residence should be looking at a bank construction loan or a construction-to-permanent loan instead. Those are consumer products, built for someone financing their own home, and they come with the full set of borrower protections and disclosures a personal mortgage carries. A rental being built by an investor or an LLC is a fundamentally different transaction — different paperwork, different underwriting, different exit.
One more thing worth flagging: if the plan changes mid-build and an investor decides to move in, the loan may no longer qualify for business-purpose treatment. That’s a conversation to have with the lender before it happens, not after.
How the Money Actually Moves During the Build
Money doesn’t show up as one lump sum. Initial funding at closing typically covers the land or lot acquisition, plus any site prep. The rest of the construction budget sits untouched in escrow until work actually gets done.
From there, the borrower or contractor submits a draw request — documentation showing what work is complete and what it cost — and the lender orders a job-site inspection to verify progress before releasing the next installment. Well-run draw schedules also hold back a small retainage on each draw, leverage to make sure subcontractors finish punch-list items instead of walking off once the rough work is paid.
Builder’s risk insurance runs alongside every draw. It’s temporary and designed specifically for active construction sites — different from the landlord policy that covers a completed, occupied rental — and most policies run six to twelve months, with extensions available if the build runs long (Steadily). That policy has to be swapped for a standard landlord policy the moment the certificate of occupancy is issued. Miss that switch and the house sits uninsured for its actual use.
What Underwriting Looks At (and What It Skips)
Underwriting on a hard money construction file weighs the project, not the pay stub. That’s the single biggest difference from a bank construction loan, and it’s why an investor with modest personal income but a solid deal and an experienced GC can often move forward where one with a great income statement and a shaky plan may not.
What actually gets reviewed:
- Land or lot value and clear title
- Full construction plans and specifications
- An itemized budget, ideally with a contingency line most experienced builders carry for material and labor cost swings
- Contractor bids, the GC’s license and insurance, and their track record on comparable builds
- The as-completed appraisal
- A documented exit strategy — refinance or sale
Credit still matters, but minimums vary widely by program — some lenders in the network carry no fixed credit floor, though stronger credit typically supports better leverage and terms. Nobody in this space promises approval without a credit check, and no lender promises approval, period — every file stands on its own. One edge case worth flagging: a major addition that significantly grows a house’s finished square footage sometimes gets underwritten as new construction rather than as a rehab loan, so it’s worth confirming which bucket a large renovation falls into before assuming the numbers work one way or the other.
Hard Money Construction vs. the Alternatives
Four paths lead to a finished house, and picking the wrong one wastes time.
| Loan Type | Underwriting Focus | Consumer Disclosures | Best For |
|---|---|---|---|
| Hard money construction | Project cost, GC track record, as-completed value | Business-purpose, none required | Investors building a rental |
| Bank construction loan | Borrower income, credit, DTI | Full consumer disclosures apply | Owner-occupants, primary residence |
| Construction-to-permanent | Income plus build plan, single closing | Full consumer disclosures apply | Owner-occupants wanting one closing |
| Owner-builder loan | Borrower’s own build credentials | Depends on occupancy | Experienced builders self-managing |
The owner-builder row deserves a caveat: it’s the exception, not the rule. Most hard money programs still want a licensed, insured GC of record on the project even when the borrower has building experience of their own.
The Application Process, Step by Step
1. Secure the land or lot and line up a licensed general contractor. 2. Assemble full plans, specifications, and a line-item budget with a contingency reserve. 3. Talk through the deal with a broker who can match the scope to a lender in the network. 4. Order the as-completed appraisal against the plans and specs. 5. Close — initial funds typically cover land and site prep. 6. Submit draw requests as work completes; the lender inspects before each release. 7. Reach final completion — the appraiser confirms the finished work matches the original assumptions, lien waivers get collected, and the certificate of occupancy gets issued. 8. Swap builder’s risk insurance for a standard landlord policy. 9. Refinance into permanent financing or sell.
For a rundown of what to compare across lenders before starting this process, Lendmire’s guide on finding hard money construction lenders covers the shopping side in more depth.
What Goes Wrong — and How to Plan Around It
Deals rarely go sideways because of the loan structure. They go sideways because the budget didn’t have enough room for reality. Material costs move, subcontractors run behind, permitting takes longer than anyone planned for, and a project that was supposed to wrap on schedule bleeds into extra months. Running past a loan’s original term can trigger extension costs, which is one more reason a realistic timeline — and a real contingency line in the budget — matters more than optimism.
The other risk that catches first-time builders off guard is a cash-timing gap. Draws reimburse completed, inspected work — they don’t pay contractors in advance. That means an investor needs working capital beyond the initial equity contribution to keep the job moving between draws, not just enough to cover the down payment at closing.
Building Your First House? Here’s How to Qualify Anyway
Not having personal ground-up experience isn’t automatically disqualifying — bringing on a demonstrably experienced, licensed GC is the workaround that shows up again and again across the private-lending space. The lender underwrites the contractor’s completed-project history in place of the borrower’s own track record, sometimes with the GC added directly to the deal team or the borrowing entity.
There’s no standardized threshold for exactly how much GC experience unlocks this — the number of prior completed projects a lender wants, and whether rehab experience counts toward ground-up eligibility, is program-specific and varies file to file. A first-time builder’s strongest move is pairing a thin personal track record with an unambiguous one on the contractor side, and being upfront about that pairing when the file goes to underwriting rather than letting it surface as a surprise.
The Exit: Turning a Finished Build Into a Permanent DSCR Loan
Once the certificate of occupancy is issued and the builder’s risk policy converts to standard landlord coverage, most investors move to pay off the construction loan rather than carry short-term, interest-only pricing indefinitely. That usually means a refinance into permanent DSCR financing, subject to lender program eligibility, or a sale.
A newly built house has no lease history, so the DSCR takeout lender typically leans on an appraiser’s opinion of market rent instead of trailing income — the same comparable-rent-schedule concept the industry uses to document market rent for a single-family investment property (Fannie Mae). That opinion supports the file, though the DSCR a lender ultimately approves still runs off the program’s own minimums and the actual loan terms; a rent schedule doesn’t set the ratio by itself.
On rate-term and cash-out DSCR refinances, leverage across most of the network tops out around 75% LTV, and roughly six months of seasoning is the common expectation before a cash-out refinance closes. Coverage floors start as low as 1.00 on select programs — a floor for specific programs, never a universal standard — and stronger coverage tends to open better leverage and pricing tiers. Credit floors vary too: some programs go as low as 620, most files want something closer to 660, and a 700+ score tends to unlock the strongest leverage tiers. DSCR loan sizes typically run from around up to $3,000,000 on standard programs (smaller balances available through select lenders), and above roughly $2,500,000 the network generally settles into 30-year fixed structures. Reserve requirements also vary — commonly around six months of the property’s carrying costs, though conservative rate-term files at modest leverage can sometimes see that waived, while larger loans often step up to nine months.
If the finished house is going to operate as a short-term rental instead of a standard lease, the takeout gets more involved. Standardized rent-schedule forms weren’t built for that use case — appraisal-industry commentary notes the form “is not designed for single-family properties used as STRs” and doesn’t account for vacancy or the extra services short-term operation involves (McKissock). Expect a lender financing a new-build short-term rental to want its own occupancy-and-rate-based income analysis, along with roughly 12 months of hosting history where the program requires it — a bar a house that just finished construction can’t clear on day one. Purchase leverage on short-term rental DSCR loans commonly runs up to 75% LTV, with refinance and cash-out leverage closer to 70%. Short-term rental rules can also vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
Investors who want the full picture on how DSCR lender review works can read Lendmire’s complete DSCR loans guide, which walks through the property-income underwriting model DSCR lenders use in place of personal income documentation. Investors coming out of a fix-and-flip or buy-rehab-rent-refinance hold instead of new construction face a similar seasoning and takeout question, covered separately in Lendmire’s piece on refinancing a hard money loan after a BRRRR strategy.
Investors weighing this path can reach Lendmire’s team at 828-256-2183 or request a quote to compare structured options across its wholesale network of DSCR and hard money lenders spanning 39 states plus Washington, D.C., under NMLS# 2371349. If the plan is to build, stabilize, and hold, Lendmire can help compare DSCR takeout options based on the property’s projected rental income, the borrower’s credit profile, target leverage, and the overall investment goal.
None of this is a commitment to lend, and approval is never guaranteed. Every scenario described here is subject to lender approval and to the specific borrower, property, and program guidelines in place at the time of application. This article is general information, not financial, legal, or tax advice — tax treatment can depend on how loan funds are used and how the property is held, so investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Frequently Asked Questions
Can I get a hard money construction loan to build my own home to live in?
Generally, no — these are business-purpose loans built for investors and rental property, not for financing a personal residence. Someone building a house to live in should look at a bank construction loan or a construction-to-permanent loan instead, both of which are consumer products carrying the disclosures and protections a personal home loan requires.
How much down payment do I need for a hard money construction loan?
Leverage varies by lender and by borrower experience, with many program types reaching up to 90% for well-qualified investors. Ground-up construction specifically runs on a blended cost-and-value basis rather than a single flat percentage, so the actual down payment depends on the project, the lender, and the borrower’s track record.
Do I need construction experience to qualify?
Most lenders want to see it, but a lack of personal ground-up experience isn’t automatically disqualifying. Bringing on a licensed, experienced general contractor as the GC of record is the common way to offset a thin personal track record.
What happens to the construction loan once the house is built?
Most investors refinance into permanent financing, often a DSCR loan, or sell the property once it’s finished. The construction loan is short-term by design, and the lender’s confidence in that eventual takeout is part of what gets underwritten upfront.
Can I build a short-term rental with a hard money construction loan?
Yes, the construction phase works the same way regardless of the intended use. The difference shows up at the takeout — a short-term rental typically needs an occupancy-and-rate-based income analysis and a hosting-history requirement, rather than the standard market-rent appraisal used for a long-term lease.
Program availability, loan terms, and eligibility are subject to lender guidelines, credit approval, property review, and full underwriting. This article is educational and is not a loan offer or commitment to lend.
Short-term financing tends to work best when the long-term plan is decided early – see refinancing out of a hard money loan with a DSCR loan.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 40 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
Many investors treat hard money as the acquisition tool and plan the exit up front – see refinancing out of a hard money loan with a DSCR loan.
Lendmire’s Top Mortgage Workplace recognition is documented by Scotsman Guide 2025 Top Mortgage Workplace and Scotsman Guide 2026 Top Mortgage Workplace.
Investment Property Review
See how the DSCR math works for your investment property.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. National Association of Home Builders — Special Study: Cost of Constructing a Home
2. Doss Law — Business Purpose Exemption Simplified
3. Steadily — Ultimate Guide to Builder’s Risk Insurance
4. Fannie Mae — Single-Family Comparable Rent Schedule (Form 1007)
5. McKissock Learning — Form 1007 & Its Impact on Short-Term Rental Appraisals
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.
