Construction & Development Loans: Financing for New Projects
Building new residential properties or undertaking ground-up development projects requires substantial capital. Construction & Development Loans provide the financing necessary to cover land acquisition, materials, labor, and other construction costs, enabling developers and builders to bring projects to completion efficiently.
What Are Construction & Development Loans?
Construction & Development Loans are short- to medium-term financing options specifically designed for new construction projects. Unlike traditional mortgages, which are based on completed property value, these loans fund the project in stages, releasing funds as construction milestones are met.
Key Features:
Fund land purchase, construction, and development costs
Typically short-term (12–36 months)
Disbursement in stages based on project progress
May require detailed project plans, permits, and budgets
Typical Interest Rates & Loan Structure
Interest Rates: Generally range from 6% to 12%, depending on project risk, developer experience, and loan size.
Loan Term: Usually 12–36 months, until project completion and permanent financing or sale.
Loan Type: Falls under development and construction financing, secured by the land and future property.
Repayment: Interest is often paid during construction, with principal due upon project completion or refinancing.
When to Consider Construction & Development Loans
These loans are ideal for developers and builders who need funding for:
New residential projects: Single-family homes, townhouses, or condo developments.
Ground-up commercial development: Office buildings, retail centers, or mixed-use projects.
Land acquisition and preparation: Purchase and prep land before construction begins.
Project expansion: Add phases or additional units to an existing development plan.
Example: A developer uses a construction loan to build a 10-unit townhouse complex, paying only interest during construction, and refinances with a permanent mortgage once units are sold or leased.
Benefits of Construction & Development Loans
Access to Capital: Provides the funding needed for large, capital-intensive projects.
Flexible Disbursement: Funds are released as construction milestones are completed.
Project Oversight: Lenders may offer guidance, helping ensure projects stay on schedule and budget.
Maximized Returns: Enables developers to leverage funding for multiple projects simultaneously.
Risks of Construction & Development Loans
Project Delays: Construction or permit delays can increase costs and interest paid.
Market Risk: Changes in real estate market demand can affect project profitability.
Complex Approval: Requires detailed project plans, budgets, and approvals, which can slow funding.
Collateral Risk: Land and project may be at risk if loan terms are not met.
Strategic Use of Construction & Development Loans
Detailed Planning: Submit realistic budgets, timelines, and project plans to secure approval.
Budget Contingencies: Account for unexpected costs, material price fluctuations, and labor issues.
Stage Funding Management: Coordinate construction milestones with loan disbursements to optimize cash flow.
Exit Strategy: Have a clear plan for refinancing, sale, or lease of the completed property.
Is a Construction & Development Loan Right for Your Project?
If you are a developer or builder needing capital for a new construction or development project, a Construction & Development Loan can provide the funds necessary to complete your project efficiently while managing risk. Proper planning and experienced oversight are key to success.
At Libiano Partners, we connect developers with lenders offering tailored construction and development financing solutions for residential and commercial projects.
Fill out our intake form today and let Libiano Partners connect you with the right construction and development loan for your next project.
