Ground Up Construction Loan

Niv Ovadia
September 8, 2022
Est. Reading: 7 minutes

As California’s economy becomes more and more explosive and interest rates become unpredictable, it can become almost impossible to keep up with the increased cost of construction for various residential and commercial property types. 

It’s more important now than ever before to equip yourself with the knowledge to tackle the financing processes of development, material purchase, and labor costs for any of your current or future construction projects. 

Ground Up Construction Loan

Ground-up construction loans are one of many financing solutions for Project Developers, Real Estate Investors, and General Contractors looking to simplify their project plans. PMA wants to provide each of these professionals with the proper expertise to really face these problems head-on. 

If you have any questions please don’t hesitate to contact us at (818)-237-1171

Now let’s get into the real meat of the subject. 

What is a Ground Up Construction Loan?

A ground-up construction loan is best defined as a quick creative financing solution that assists real estate investors and builders looking to construct a residential, commercial, or mixed-use project that is already shovel-ready or entitled. 

This type of loan (alongside many others) is categorized under Professional Mortgage Associates: Bridge Loan Program where we provide financial assistance to real estate professionals of all classes. The partners at PMA are known as California finance lenders and specialize in many types of construction loans. 

A ground-up construction loan is the best fit for: 

  1. An investor or contractor who has already purchased a plot of land and is looking to finance the beginning of their new project. 
  2. An investor or builder whose financial situation can not rely on the waiting period of a bank’s financing solution. Individuals who need to capitalize on their new project NOW!
  3. Investors or builders who are in need of a creative financing solution to purchase: building materials, labor, or the piece of land itself. 

There are multiple types of construction loans for various real estate professionals, all based on the project parameters and finances requested.

Now that you have a basic understanding of what a ground-up construction loan is, 

Let’s take a look at an example:

To really provide a clear explanation as to “what a ground-up construction loan is”, we’ve provided two real-world scenarios in which a ground-up construction loan helped fund our client’s ground-up construction projects.

  • Clients were looking at purchasing a residential property with 0% down. With a ground-up construction loan & the cross collateralize (only possible with a bridge loan asset) of other properties, PMA managed to provide the clients with 100% financing to purchase the residential property. On top of that, the loan provided additional money for the extensive remodeling and ground-up construction of an addition to the property. 
  • Clients came to PMA looking for 100% financing for a $4,000,000 acquisition for a ground-up construction land project. The project’s process cost was approximately $7,000,000, and again through cross-collateralization, PMA was able to provide $4,400,000 enabling them to purchase the property AND finance the plans and permit process for the new house. 

Both of these examples are meant to be a representation of how creative solutions enable investors to create leverage in order to produce more transactions

Ground Up Construction Loan Requirements in California 

It’s no surprise that getting any type of loan has its set of qualities that each borrower has to provide proof of. Thankfully, a ground-up construction loan works a little differently than other traditional type loans. 

Ground Up Construction Loan Process

Good news! A construction loan from PMA falls under the category of a bridge loan, typically processed as a short-term hard money loan. Due to this, the construction loan has: 

  • Faster funding
  • A simple single loan application
  • And uses the future costs of property to borrow MORE

Requirements for a ground-up construction loan lie within a range of attributes depending on the project itself. To truly get a perfect personalized loan, investors and builders must meet certain requirements such as: 

  • A Good Credit Score: Real estate investors and builders should have a credit score of a minimum of 680, with an ideal average of 720 for more personalized loan options. This requirement is mainly for the banks to see a positive credit history to be able to minimize the risks of providing a loan to the borrower. 
  • Have a Construction Project Plan and Approval: Going hand-in-hand with experience, having an agreed-upon construction project plan with approval from permit requirements is a considerable addition to quickly completing a ground-up construction loan. 
  • Experience: Lenders want to know that our borrowers and sponsors are knowledgeable about the project they are bringing to them so that they can increase the rate of success. We believe that without our clients being successful we fail. 
  • Calculation of Costs: It’s very important to have all of these calculations understood as well, such as the cost of the acquisition and cost of the construction and sales price, ARV (after repair value). Plus the construction budget. 

What are the Benefits and Risks of a Ground-Up Construction Loan?

Benefits (Pros)

  • Minimum / Alternate Income Documentation 
  • No Occupancy Requirements 
  • Financing in as little as 2 Weeks
  • Qualify based on the Property Itself
  • Low Rates Starting at 7.89% 
  • Unlimited Flexibility 
  • Build & Finance in Stages 

One of the main benefits of a ground-up construction loan lies in the fact that the borrower can completely customize the project itself with the money provided by the loan. Meaning there are no original boundaries that the loan relies on. The loan amount itself varies depending on the project details. 

Ground Up Construction Loan

This type of loan provides a lot of freedom and flexibility, which is one of the many reasons a lot of borrowers tend to prefer it over others. 

Risks (Cons)

  • Tend to be more expensive than other loan options
  • Take longer than other loan options
  • Short-term financing for 6-12 months

The flexibility and customization of ground-up construction loans do come with a price!

 This is why PMA recommends using a ground-up construction loan for bigger, more profitable projects requiring multiple completion stages

Here are some property types that are eligible and recommended for the use of a ground-up construction loan: 


  • Classified as a 1-4 unit residential property typically including townhomes, owner-occupied residential homes, duplexes, Fix and Flip, condos, etc. Professional Mortgage Associates have specific financing solutions for individuals looking to purchase, refinance, or renovate such properties. 


  • Classified as office complexes, industrial, hotels & hospitality, cannabis, retail, etc. Professional Mortgage Associates have specific financing solutions for borrowers looking to purchase, refinance, or renovate such properties. 

Differences between Ground Up Construction Loans and Traditional Loans

Construction loans are specific types of loans designed to finance the construction or renovation of a building. There are two main types of construction loans: ground-up construction loans and renovation loans.

These loans have distinct differences from traditional loans, including loan term length, application style, coverage flexibility, expenses, and growth.

A ground-up construction loan is a loan designed specifically for the purpose of financing the construction of a new building.

This type of loan is ideal for builders or developers who are starting a construction project from scratch. The loan covers the costs of purchasing the land, designing and building the structure, and any associated fees.

On the other hand, a renovation loan is a loan used to finance renovations or remodeling of an existing property. This type of loan is ideal for individuals who want to make improvements to their existing home or property.

Renovation loans typically provide funding for cosmetic improvements, such as new flooring or a kitchen remodel, as well as structural upgrades, such as a new roof or an addition.

Both ground-up construction loans and renovation loans have loan terms of 12 to 24 months, but this can vary based on the lender and the specifics of the project.

Application styles for construction loans can vary depending on the lender and the type of loan but typically involve a detailed project plan and budget, as well as information on the borrower’s financial situation and experience.

The coverage flexibility of construction loans varies based on the lender, but can typically be customized to meet the specific needs of the project. For example, some loans provide coverage for land acquisition, while others do not.

Additionally, some construction loans may provide coverage for additional expenses, such as permit fees or builder fees, while others may not.

The expenses associated with construction loans depend on the specific loan and the project but can include land acquisition costs, construction costs, builder fees, and interest on the loan.

The growth associated with construction loans depends on the specific project and market conditions but can include increased property value, rental income, and resale value.

Whether you’re starting from scratch or giving your existing property a makeover, it’s important to understand the differences between these loans and traditional loans.

By knowing the unique benefits and drawbacks of each option, you can make an informed decision on the best financing solution for your construction or renovation project.

FAQ Ground Up Construction Loan

  1. How is a ground-up construction loan different from traditional mortgages?
    • A ground-up construction loan is a short-term loan specifically for construction purposes, while traditional mortgages are long-term loans for owner-occupied properties.
  2. What percentage of construction funds can I borrow?
    • The percentage of construction funds that can be borrowed varies among lenders. Lima One Capital can lend up to 90% of lot purchase and construction costs, and up to 100% of construction costs for a project on a lot you already own outright.
  3. How will construction draw work?
    • Different lenders have different processes for construction draws. Borrowers need to understand the documentation required for each draw, associated fees, and whether commitment funding is available to avoid paying interest until funds are drawn.
  4. What kind of project plan do I need to create?
    • Having a detailed and feasible project plan is crucial for successful construction projects. Lenders may have specific requirements, so investors should be aware of them to expedite the loan process.
  5. What happens if my project timeline runs over?
    • Investors should understand the loan terms regarding potential penalties or costly loan extensions if the project timeline exceeds expectations due to factors such as weather delays or contractor issues.

So why wait? Let’s start building!

ground up construction loan

Why Choose PMA? 

We’ve given you the tools to really understand the fundamentals of a ground-up construction loan, and have provided you with opportunities to further your thirst for knowledge. 

Now that you know what to expect when taking advantage of this financing solution, it’s time to work with a lender that has your best interest and success at heart. Ground-up Construction loans are just a single class of bridge loan programs, all personalized and specially curated for each individual.

At PMA, we prioritize these types of loans because we know that they have the most benefit for true professionals and investors

Take a look at PMA’s creative loan solutions or get started with a short application form right away and let one of our expert representatives give you a call! 

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