Updated October 26, 2026 · 7 minute read
How a Construction Loan Is Sized
Construction loans look at two numbers: loan to cost and loan to value when finished. Loan to cost covers the lot plus the build budget. Programs go up to about 90% of cost for experienced builders, and the loan also has to fit within a percentage of the completed value, so a strong appraisal on the finished home matters as much as the budget.
If you already own the lot, its equity can count toward your contribution. A lot bought for $150,000 that now appraises at $250,000 can cover much of your required cash.
Hard Costs and Soft Costs
Hard costs are the physical build: foundation, framing, roof, mechanicals, finishes and site work. Soft costs are everything else: plans, engineering, surveys, permits, utility tap fees and builder's risk insurance. Lenders want both on the budget, along with what you have already spent. Tap fees and permits in Davidson County can run well into five figures, so leaving them out is the most common reason a budget gets sent back.
Draws, Interest and Reserves
The build budget is held back and released in draws as phases are completed and inspected, and with non-Dutch interest you only pay interest on what has been drawn. Many programs include an interest reserve, which sets aside money in the loan to cover payments during the build so your cash stays in the project. Terms are typically 12 to 24 months, with extensions available.
What to Have Ready
A complete package gets a quote in a day instead of a week:
- Lot address and whether you own it or have it under contract
- Plans, or at least a site plan and square footage
- A line-item budget with hard and soft costs and what is spent to date
- Permit status
- Comparable sales for new construction nearby
- Your completed builds in the last 36 months, or your general contractor's
Have a Deal in Mind?
Send the numbers and we will come back with terms. Our new construction loans application takes about 5 minutes.