New construction loans Texas builders and investors use fund ground-up building on investment properties: infill spec homes, build-to-rent single families, and small subdivisions. Kestrel Lending puts your home construction loan in front of 20+ lenders who compete on your deal, delivering term sheets in 24 hours. Get Your Rate in 24 Hours.
A home construction loan is a short term financing product designed for building a new home from the ground up on a vacant lot or homesite. Unlike a traditional mortgage used to buy an existing property, this type of loan releases capital in stages. The lender disburses funds through a series of draws as each construction phase is finished: foundation, framing, mechanical systems, and finish work. You pay on the amount drawn, not the full balance. Once building is completed, the note is either paid off through sale of the new home or refinanced into a permanent mortgage.
Construction financing is more complex than a standard mortgage because the property does not exist yet at closing. Capital sources underwrite the plans, budget, builder track record, and after-completion value (ARV) rather than simply appraising what is already there. A traditional mortgage relies on an existing building; a home construction loan relies on what you plan to build. That complexity is why we put 20+ Texas lenders in competition on your deal. Not every bank or private lender is comfortable with ground-up construction projects, and those that are have specific boxes for the type of project, builder background, and geographic market. Unlike walking into a local branch of a bank and speaking with a loan officer, our application process gives you access to multiple build-friendly capital sources with local decision making on Texas deals, helping you find the right fit and understand your options.
| Detail | Typical Terms |
|---|---|
| Interest Rate | 10.5% to 13.5% (varies by builder background and deal structure) |
| Points | 1.5 to 3 origination points |
| Maximum LTV | Up to 70% of after-completion value (ARV) |
| Loan to Cost | Up to 85% of all-in price (land + vertical spend) |
| Term Length | 12 to 18 months, interest only payments |
| Payments | Interest only on drawn balance, no prepayment penalty |
| Draw Schedule | 4 to 6 draws by stage: foundation, frame, mechanical, finish |
| Closing Speed | 14 to 21 days typical |
| Amounts | $75K to $3M |
| Property Types | Single family spec homes, build-to-rent, small subdivisions (2 to 10 units), townhomes |
| Land and Lot Financing | Select land loans and lot loans evaluated case by case |
Construction loan terms vary based on your track record as a builder, the scope, location, and each lender's appetite for new home building in that market. Builders who have finished multiple builds qualify for higher leverage, lower rates, and faster closings. First-time builders should expect more conservative loan terms: lower LTC, more documentation required, and a higher down payment. Compare rates across every type of loan on our rates page to explore your options.
A construction loan does not release the full loan amount at closing. Instead, the lender releases funds in stages through construction draws tied to each construction phase. Here is how the typical construction loan process works, step by step:
Interest only payments during the construction period keep your monthly payments low. You pay on the drawn balance, not the full amount. On a $280,000 home construction loan at 12% with $140,000 drawn on average, your payment is approximately $1,400 per month. This draw structure is how private construction financing works across Texas. For renovation work on existing properties, explore our fix and flip program.
Construction to permanent loans combine the construction phase and the permanent mortgage into one product. Instead of closing on a construction loan and then taking out a second note for long term financing, a one time close construction to permanent loan rolls both into a single closing with one set of fees.
A one time close construction loan converts automatically into a permanent loan once building is completed. The borrower locks in the permanent mortgage rate at the beginning of the process. This eliminates a separate application, a second round of settlement fees, and the risk of rate changes during the construction period. One time close construction to permanent loans are available from select lenders on our panel and work well for build-to-rent investors who want long term financing locked from day one.
For Texas investors building a home as a rental property, a construction to permanent loan structured as a one time close can save thousands and simplify the transition from the building phase to a hold strategy. The permanent loan portion typically converts to a 30 year fixed rate mortgage or an adjustable-rate mortgage loan, depending on the lender and the borrower's goals.
With a two-close structure, you take out a construction loan first and then refinance into a separate permanent loan after the build is done. This gives borrowers flexibility: you shop for the best permanent financing after home construction is finished, rather than locking into one lender's terms at the start. Hard-money construction loans typically follow the two-close model. The construction loan is the short term loan that covers the build, and the permanent loan is the long term financing that follows.
For spec home builders who plan to sell, the construction loan is paid off once the project is completed and sold, so no permanent financing is needed. For build-to-rent investors, the refinance is usually into a DSCR loan that qualifies on the property's rental income. Learn more about DSCR requirements in Texas.
A land loan or lot loan finances the purchase of a vacant parcel before building begins. Some capital sources roll the lot loan into the overall construction loan, covering both the land purchase and vertical spend in one package. Standalone lot loans for land banking (buying a lot with no immediate plans to build) are harder to place and typically require a 30% to 50% down payment with shorter terms.
We evaluate land loans and lot loans case by case. If you already own the lot free and clear, the equity in the land counts toward your down payment on the construction loan, reducing the cash you need. If you are purchasing the lot and starting within 90 days, most prefer to wrap the lot loan into the construction financing as one mortgage loan package. Lot loans on infill sites in established Texas neighborhoods are easier to place than raw acreage.
Here is how a construction loan works on a typical Texas spec home, a Houston infill new home build.:
The construction loan is the lower of 85% LTC or 70% ARV:
The down payment represents 15% of the all-in price. Remaining vertical costs are funded through draws as each stage is finished and approved.
At a 12% rate on an average drawn balance of $150,000 over the 10 month building process, payments are approximately $1,500 per month. You pay only on capital disbursed, not the full balance. Total cost of carry over 10 months is approximately $15,000.
This deal works because the all-in ($350,000) stays under 70% of ARV ($336,000), leaving room for overruns and market shifts. Run your own numbers on our calculator.
If this is your first build, expect lenders to require more documentation: a detailed line-item cost plan, approved architectural plans, a licensed general contractor, and proof of liquid reserves for 6+ months of payments. Credit approval standards are tighter, typically requiring a minimum credit score of 660 and a down payment of 20% to 25% of the project price. The application process takes longer, and leverage may be capped lower. Lenders want to see that you and your contractors can manage the building process from start to finish. Consider starting with a straightforward infill lot and proven floor plan before choosing a larger build.
Volume builders with a track record of finished builds get pre approved faster and secure better construction loan terms. Rates drop to 10.5% to 11.5%, leverage increases to 85% LTC, and draws are processed faster. Some lenders offer builder lines covering multiple builds in parallel. If you have finished five or more homes, you qualify for a streamlined application and reduced documentation. Your track record as a builder is the single biggest factor in securing higher leverage and lower cost construction financing. Volume builders make informed decisions faster, grow their business year after year, and can carry multiple builds across Texas.
Construction financing is harder to place than a fix and flip loan or bridge loan because fewer lenders offer it. Many private lenders focus on renovations and skip new home construction entirely. The ones who do finance ground-up builds have specific requirements for builder background, the type of project, and geographic market. That is where we help.
We put 20+ Texas lenders in competition on your deal. Your loan application goes to lenders whose box matches your construction project. You receive competing term sheets, compare loan terms and rates, and choose the best fit. If one lender retrades, we move the file to a backup. Our fee is disclosed upfront, and competition between lenders typically saves enough to offset it. See how our workflow operates.
We also help borrowers plan the exit. For spec home builders, the exit is the sale. For build-to-rent investors, the exit is a refinance into a permanent loan, typically a DSCR loan or construction to permanent loans that convert to a DSCR note. Whether you need a short term construction loan or a one time close construction loan that converts to permanent, we match the financing to the strategy. Investors holding homes as Airbnb rentals or long term rentals have clear paths from construction financing to permanent financing.
Before you apply for a construction loan in Texas, gather these key details and complete paperwork:
All construction loans are business-purpose financing on investment property only. These are not dream home builds for owner-occupied residences. Loans subject to lender and third-party appraisal requirements apply. Get Your Rate in 24 Hours.
Construction loans typically close in 14 to 21 days once plans, permits, and the budget are accepted. The construction loan process takes longer than a fix and flip closing because lenders review architectural plans, builder qualifications, and a detailed cost breakdown. Having your documents ready before the application speeds up the timeline to project completion.
We place select land loans and lot loans case by case. The lot loan is often rolled into the construction loan when building starts quickly. Standalone lot loans for land banking require lower leverage and a clear building plan for the site. Land financing depends on the lender and the scope of the build.
A construction to permanent loan combines the construction phase and permanent financing into one product. With a one time close construction to permanent loan, you close once and the construction loan converts to a permanent mortgage when building is done. This eliminates a second loan, duplicate fees, and the risk of rate changes. Construction to permanent loans are the preferred mortgage loan structure for build-to-rent investors who want to secure long term financing from the start.
Capital is released in 4 to 6 draws tied to construction stages: slab, frame, mechanical, and finish. Each draw requires a third-party inspection confirming the work is done. Expect 3 to 5 business days from request to funds in your account. Payments are based on the disbursed balance only, keeping carry low during the construction phase.
First-time builders can get approved but should expect stricter terms: lower leverage, a higher down payment, and a requirement to hire a licensed general contractor with a proven track record. Volume builders with 5+ completed projects qualify for higher leverage and better rates. Lenders evaluate builder background alongside plans and budget.
A fix and flip loan covers the purchase and renovation of an existing property. A construction loan covers building a home from scratch on a vacant lot. Construction loans carry longer terms (12 to 18 months vs. 6 to 12), involve higher construction costs, and follow a more structured draw process. Both are short term hard-money financing designed for investment properties in Texas.
Ready to finance your next build? Kestrel Lending puts 20+ Texas lenders in competition on your ground-up construction deal and delivers competing term sheets in 24 hours. Submit your plans and budget today. Get Your Rate in 24 Hours.
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