New construction loans are a game-changer for beginner real estate investors looking to build homes or investment properties from the ground-up. These loans cover costs like land, materials, labor, and permits, enabling you to create modern, high-value properties in growing markets. Unlike traditional mortgages, new construction loans are tailored for the building phase from start to finish.
With real estate shows like Property Brothers showcasing the potential of new builds, more investors are exploring construction loans in 2025. This guide will cover how to research loans, budget effectively, build a reliable team, and profit from your project. Whether you’re constructing a rental property or a custom home, this article will help you navigate the process with confidence.
Researching New Construction Loans
Starting a ground up construction project requires careful planning and market knowledge. For beginners, understanding loan options and project costs is essential to success. Here are our top three tips to kickstart your journey with new builds.
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- Understand Market Trends
Research neighborhoods with strong demand for new homes or rentals to ensure a high return on investment (ROI). Look for areas with rising property values, new infrastructure, or low inventory. Connect with local real estate agents or join investor groups to gain insights into prime locations for new builds.
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- Plan a Realistic Budget
Create a detailed budget covering land acquisition, construction, permits, and contingencies. Factor in a 10-20% buffer for unexpected costs, such as material price hikes or delays. Use online calculators or consult builders to estimate expenses accurately. A well-planned budget protects your profits and ensures loan approval.
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- Find a Licensed Builder
A skilled builder is important for timely, high-quality construction. Research local builders with experience in new builds, check their references, and review past projects. Avoid unlicensed contractors to prevent delays or shoddy work. Select a builder who aligns with your budget and vision.
Costs of New Build Loans
To maximize profits and avoid financial missteps, beginners must understand the costs of ground-up construction. Here’s a breakdown of the primary expenses:
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- Land Acquisition Cost
The price of the land sets the foundation for your project’s budget. Use the 70% Rule to determine the maximum you should spend: multiply the After-Repair Value (ARV) of the finished property by 70% to calculate land and construction costs. Negotiate strategically to secure land at a discount.
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- Loan-To-Cost (LTC)
LTC is the percentage of total project costs (land + construction) a lender will finance. Hard money lenders, like Easy Street Capital, can offer up to 85% LTC with a mere 15% down payment.
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- Loan-To-Value (LTV)
LTV compares the loan amount to the property’s ARV. Lenders, like Easy Street, often cap LTV at 70% to ensure the loan aligns with the property’s value after construction. A higher ARV can increase your borrowing power.
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- Down Payment and Closing Costs
Expect to pay 15-20% of the project cost as a down payment, plus closing costs like origination fees and appraisals. Easy Street Capital, for example, requires only a 1.5% origination fee, keeping upfront costs competitive. Save enough to cover these expenses.
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- Construction Expenses
These include materials, labor, permits, and inspections. Lenders like Easy Street disburse funds in stages (draws) as construction milestones are met. Budget carefully to avoid cost overruns, and work with your builder to keep expenses in check.
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- After-Repair Value (ARV)
ARV is the estimated market value of a property post-construction. Calculate it by adding land costs, construction expenses, and expected appreciation based on local comps. A strong ARV ensures profitability and loan approval.
Funding Your Construction Project
Beginners have several options for financing ground-up construction. Still, hard money loans with Easy Street Capital’s EasyBuild program stand out as a top choice for speed, flexibility, and investor-friendly terms.
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- Hard Money Loans
Hard money loans from Easy Street Capital are the ultimate solution for new construction projects, delivering the fastest approvals in the industry and funding up to 85% of project costs. With competitive interest rates starting at just 10.25% in 2025, these loans prioritize speed and simplicity, requiring minimal paperwork compared to other options. Easy Street Capital’s deep expertise in GUC ensures a smooth process, and their bridge loans allow you to seamlessly refinance into long-term rentals for boosted profits. For beginners, EasyBuild is the fastest, most reliable way to bring your vision to life.
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- Conventional Construction Loans
Banks and credit unions offer construction-to-permanent loans that convert to a mortgage post-construction. Typically rates are lower (6.5-8.5%) but come with strict requirements like higher credit scores to qualify and 20% down payments. This can pose as a cumbersome barrier, especially for beginner builders. The lengthy approval process may also delay competitive projects.
Ready to Get Started?
Easy Street Capital is the best construction real estate lender offering flexible, investor-friendly loan programs for all experience levels. Specializing in ground-up construction, new home builds, and rental properties, we provide fast, customized solutions with up to 85% LTC and low 1.5% origination fees. As a discretionary lender, we prioritize your success.
Contact us today to finance your next construction project!
Apply for a New Construction Loan Today!
About the Author
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