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Ground-Up Construction Loan FAQs

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What is a Ground-Up Construction loan?

A Ground-Up Construction, or GUC, loan is designed for real estate investors constructing a new residential property from the ground up.

Under the guidelines, a project is generally considered GUC when it involves either:

• Vacant land where a new property will be constructed

• A property where 50% or more of the existing structure will be demolished

• A property that is not yet considered weathertight

A property is generally considered weathertight once the roof, house wrap, windows, and doors have been sufficiently completed to protect the interior from the weather.

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What is the minimum credit score for a Ground-Up Construction loan?

The minimum qualifying FICO score is generally 650.

Credit adjustments apply as follows:

• 650–679 FICO: 10% leverage reduction

• 680–699 FICO: 5% leverage reduction

• 700+ FICO: No standard FICO leverage reduction listed

Borrowers with a qualifying FICO below 650 are generally not eligible.

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Do I need construction experience to qualify?

No Prior Ground up experience is required however, for Ground-Up Construction loans, qualifying experience generally means completed ground-up construction projects within the last three years. ESF will on a case-by-case basis accept Completed heavy rehabilitation projects toward GUC experience on an exception basis after review of items such as detailed budgets and before-and-after photos.

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What experience counts toward Ground-Up Construction eligibility?

For GUC transactions, qualifying experience generally includes completed ground-up construction projects. as an investor. (

Projects must typically have been completed within the last three years.

For a GUC project, the completion date is generally determined by:

• The date the property was sold, or

• If retained as an investment property, the refinance date or initial lease start date

Experience from individuals who are not guarantors generally cannot be counted unless specifically approved. (GC work does not count as experience)

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What is the maximum leverage for a Ground-Up Construction loan?

90% LTC is the lax leverage. (Experience based)

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What does LTC mean on a construction loan?

LTC means Loan-to-Cost.

It compares the loan amount to the borrower's total cost basis in the project.

For example:

Land/acquisition cost: $150,000
Construction budget: $350,000
Total project cost: $500,000

At 80% total LTC, the maximum loan based solely on that calculation would be approximately:

$500,000 × 80% = $400,000

The final loan amount may also be limited by LTV and after-completion value requirements.

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What is the minimum Ground-Up Construction loan amount?

The minimum GUC loan amount is generally $150,000.

 

What is the maximum Ground-Up Construction loan amount?

The maximum loan amount under the attached guidelines is generally $2,000,000. but can go up to 5M on a case by case basis.

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How long is a Ground-Up Construction loan?

Ground-Up Construction loans may have terms of up to 24 months.

The loans are generally structured as fixed-rate, interest-only loans.

 

Are Ground-Up Construction loans for owner-occupied homes?

No. These are non-owner-occupied, business-purpose loans intended for real estate investors. The property cannot be financed for personal, family, or household use.

 

Can I use a Ground-Up Construction loan to build on vacant land?

Yes. A GUC project can begin with a vacant lot, provided the site meets the applicable zoning, entitlement, parcel, utility, and construction-readiness requirements.

 

Does the land have to be ready to build?

Yes. For Ground-Up Construction transactions, the lot generally must:

• Be fully entitled and ready to build within 90 days of closing

• Be individually parceled

• Have water, sewer, well, or septic laterally ready

• Be properly zoned for the intended construction

Raw land that has not been individually parceled or is not utility-ready is generally ineligible.

 

Do I need permits before closing?

Not necessarily. Permits are not always required before the loan closes.

However, the appropriate permits must generally be provided before the first construction draw can be released. If final municipal plans and permits are not available at closing, additional third-party verification regarding zoning and plan compliance may be required.

 

Is a feasibility study required?

Yes. All Ground-Up Construction and tear-down loans require a Desktop Feasibility Study.

The study generally reviews:

• Construction budget

• Scope of work

• Proposed plans

• Permitting status

• Overall project feasibility

The same company completing the feasibility study is also expected to handle the draw inspections and fund-control process.

 

How are construction funds released?

Construction funds are generally released through a draw process.

Before funds are released, a third-party inspector verifies that the applicable portion of the construction scope has been completed.

The borrower is responsible for the cost of the draw inspections.

 

Do I receive the entire construction budget at closing?

No. Construction funds are typically held back and reimbursed through draws as work is completed. The funded construction budget forms part of the Maximum Loan Amount but is not necessarily advanced to the borrower at closing.

 

Is a construction contingency required?

Yes. Ground-Up Construction projects generally require a minimum 10% contingency within the construction budget. A lower contingency requires additional approval.

 

What can be included in the construction budget?

The construction budget can generally contain both hard costs and eligible soft costs.

Hard costs include items such as:

• Labor

• Building materials

• General contractor costs

• Physical construction expenses

Soft costs are generally limited to 15% of the total construction budget and can include items such as:

• Permits

• Architectural plans

• Third-party contractor fees

• City or county inspection fees

Items such as taxes, insurance, development fees, and interest reserves generally should not be included as standard construction-budget items.

 

Can an interest reserve be financed?

Potentially. An interest reserve may be funded from loan proceeds on an exception basis, provided it covers the full loan term and the transaction remains within the applicable leverage requirements.

 

Do I need Builder's Risk insurance?

Yes. Ground-Up Construction properties must generally carry a Builder's Risk policy written on an "All Risks" basis. Coverage should generally include risks such as:

• Fire

• Vandalism

• Theft

• Extreme weather

• Materials in transit

• Materials stored at the property

• Malicious mischief

The policy should remain in place throughout the construction period and generally cover the lesser of the maximum loan balance or full insurable replacement cost.

 

What happens if I am tearing down an existing property?

A project involving demolition of 50% or more of the existing structure is generally considered Ground-Up Construction.

If the project includes a tear-down, the first construction draw generally cannot be released until:

1. Demolition is completed, and

2. An acceptable Builder's Risk policy is in place.

 

Is an appraisal required?

Yes. Construction transactions generally require a compliant appraisal showing both:

• As-Is Value

• As-Repaired / Completed Value

The valuation must generally be completed by an independent licensed appraiser and managed through an approved AMC or appraisal panel.

 

How long is the appraisal valid?

Under the updated guidelines, valuations generally must be dated within 120 days of the loan's Note Date.

 

Is an environmental review required?

Yes, for 1–4 family Ground-Up Construction loans, an Environmental Screen Assessment is required. If the environmental screening shows elevated or high risk, the transaction generally cannot proceed unless a Phase I environmental assessment supports an acceptable risk level.

 

What property types can be financed?

Eligible residential property types generally include:

• Single-family residences

• 2–4 unit residential properties

• Warrantable condominiums

• Planned Unit Developments

• Townhomes

Minimum square-footage requirements also apply depending on the property type.

 

Can Ei8ht Street Funding finance multifamily or mixed-use construction?

Potentially, yes. The guidelines contain a separate Multifamily / Mixed-Use Rider for Bridge, GUC, and RTL transactions. These transactions are subject to additional overlays and leverage requirements beyond standard 1–4 family guidelines.

 

Are rural construction properties eligible?

Generally, no. Properties identified as rural by the appraisal are not eligible under the standard guidelines. Markets should have demonstrated liquidity and generally stable or improving housing conditions.

 

What properties are not eligible for Ground-Up Construction financing?

Examples of generally ineligible properties include:

• Mobile homes or mobile-home developments

• Co-ops

• Fractional ownership

• Log homes

• Container homes

• Working farms or ranches

• Condotels

• Timeshares

• SRO properties

• Student or boarding housing

• Properties with significant unresolved environmental issues

• Rural properties

• Raw land that is not individually parceled or utility-ready

• Unique or highly illiquid properties

Additional restrictions can apply depending on the transaction.

 

How much liquidity does the borrower need?

Minimum verified liquidity generally includes:

• Required down payment

• Closing costs

• Any borrower-funded construction costs

• Six months of loan payments based on the Maximum Loan Amount

• 10% of the lender-funded construction budget

Eligible liquidity sources can include bank accounts, certain retirement accounts, qualifying business accounts, a portion of marketable securities, and certain other approved assets.

 

Can HELOC funds be used toward liquidity?

Potentially, yes. HELOC proceeds may be acceptable when deposited into an eligible verified account. Crypto, credit cards, and unsecured lines of credit generally do not count toward liquidity unless specifically approved.

 

Can the borrower purchase the property through an LLC?

Yes. Eligible borrowing structures include:

• LLCs

• Limited Partnerships

• Corporations

• Revocable Trusts

• Certain IRA/401(k) structures

• Individuals in limited approved circumstances

Entity documentation such as formation documents, operating agreements, good standing, and EIN/W-9 documentation may be required.

 

Are personal guarantees required?

Generally, yes. When the borrower is a legal entity, the guidelines generally require a full-recourse personal guaranty from qualifying owners.

A completion guaranty may also be required, particularly for Ground-Up Construction projects.

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Can foreign nationals qualify for Ground-Up Construction financing?

Under the attached leverage matrix, Foreign National GUC transactions are not permitted under the standard program.

This is an important distinction from some of the other Ei8ht Street Funding programs.

 

Can I refinance a Ground-Up Construction project that is already underway?

Potentially. Mid-stream construction refinances require additional review, including a detailed budget showing:

• Total project cost

• Costs already incurred

• Remaining budget to complete

• Receipts or invoices supporting completed work

Funds generally will not be released for construction work completed before the appraisal inspection date.

 

What happens if I already own the land?

A Ground-Up Construction property or land acquired by the borrower or an affiliate within 24 months prior to the loan's Note Date may generally be treated as a Delayed Purchase under these guidelines.

 

Does the project need an exit strategy?

Yes. Every construction loan must have a viable exit strategy demonstrating how the loan will ultimately be repaid.

Common exit strategies include:

• Selling the completed property

• Refinancing the completed property into long-term rental financing

The guidelines generally look for either an acceptable projected return on investment or rental yield, or another well-supported explanation demonstrating the project's viability.

 

Can I build the property and keep it as a rental?

Yes, provided the transaction supports a viable refinance exit.

A common strategy is to complete the construction, lease the property, and refinance the short-term construction loan into long-term rental financing once the project is complete and qualifies.

The exit must still satisfy applicable underwriting requirements.

 

What information should I submit to get preliminary Ground-Up Construction pricing?

For the fastest preliminary review, investors should be prepared to provide:

• Property address or lot location

• Land purchase price or current land value

• Requested loan amount

• Construction budget

• Estimated completed value

• Borrower credit score

• Number of completed ground-up projects

• Plans and project description

• Current permitting and entitlement status

• Proposed exit strategy