Construction Loans · For Builders

Your capital is the bottleneck. Here is a different handoff.

Most builders I talk to do not have an opportunity problem. They have a capital problem, and it decides how many projects run at once. This page is about moving the financing to the buyer's side of the handoff for an eligible project, without changing how you build.

For builders and developers 6 min read No rates quoted, on purpose

The constraint isn't demand. It's capital.

I have yet to meet a builder who is short on lots to look at, buyers asking about the next one, or a realtor with someone in the car. What they are short on is the money to start the next project before the last one closes.

Three questions decide how many projects a builder runs at once, and none of them is about demand:

Every builder has an answer to the third one. It is usually a specific lot, with a specific buyer, that went to someone else.

Don't change the business. Change the handoff.

The traditional chain puts the builder's capital at the front and gets it back at the end:

Builder capitalLotConstructionCompletionSale

For an eligible project with an interested buyer, the chain can start on the buyer's side instead:

BuyerLot or projectApproved financingDrawsCompletion

The builder still designs, prices, builds and delivers. Same crew, same subs, same standards, same relationship with the buyer. What moves is where the financing sits and when the conversation about it happens. That is the entire change, and it is smaller than it sounds.

The process, one repeatable line

Lot, plan, buyer, review, close, build, complete. Here is who does what at each step. Notice that I do not show up until step three, and only because the buyer asked.

1

Lot

You find the lot, or you already own it. Same as today. Nothing about how you source dirt changes.

2

Plan

You design and price the build. Your plans, your budget, your contract. I am not in the room for this and should not be.

3

Buyer

A buyer wants the house. If they ask how to pay for it, that is the moment the financing conversation starts. Not before.

4

Review

I review the buyer, the project, the builder, the contract and the budget. Every one of them, individually. Some fit, some do not, and I say which.

5

Close

One closing, before the first shovel. The buyer's permanent rate is locked here, so nobody is guessing what it will be at the end.

6

Build

You build. Draws fund at inspected milestones through the loan's draw process. The buyer pays interest only on what has been drawn.

7

Complete

The build finishes and the loan converts to the permanent mortgage without a second closing or a second qualification. You are already on the next lot.

What the loan does

It is a single-close construction-to-permanent loan, in the buyer's name. The plain facts, with nothing added:

  • Single close: one closing, one set of closing costs, before construction starts
  • Interest-only during construction, on the funds drawn
  • The permanent rate is locked before the build begins
  • Draws are funded at inspected milestones
  • Land equity can count toward the buyer's down payment
  • A construction window of 12 to 18 months
  • No requalification when the loan converts to the permanent mortgage
  • $100K minimum loan amount

Every borrower, builder, property, contract, budget and transaction is reviewed individually. I would rather tell you that on a web page than have you find it out on a call. There is no blanket approval for a builder, and I am not offering one. There is a review, per project, and an honest answer at the end of it.

Who this is for

3 to 10 projects a year

You are usually waiting on one closing to start the next. The question is what the calendar looks like if you were not.

10 to 25 projects a year

You already run projects in parallel and the constraint is how many your capital can carry at once. This is a lever on that number.

Spec, custom, renovation, infill

Ground-up custom, a spec you have a buyer for, a gut renovation with a buyer attached, a teardown on an infill lot. Each is reviewed on its own.

Realtor and builder pairs

If a realtor already brings you buyers, they are already part of the handoff. The financing conversation just gets a defined place in it.

If your projects are renovations rather than ground-up builds, the same structure applies as renovation-to-permanent. Here is how that version works.

One project is enough to test the model.

I am not asking anyone to change how they run a company on the strength of a web page. Pick one project, the next one that has a buyer attached, and answer seven questions:

  1. Who is the builder?
  2. What is the lot?
  3. What is being built?
  4. Is there an interested buyer?
  5. How much capital would you normally commit to this one?
  6. For how long?
  7. Is it potentially eligible for review?

Twenty minutes, on the phone or across a table. If it fits, we run that one project and you judge the result. If it doesn't fit, we stop. Either way you know something about your own capital you did not know before, which is worth twenty minutes on its own.

Frequently Asked Questions

Does the builder need to qualify?
The borrower is the buyer, so the buyer qualifies. The project, the builder, the contract and the budget are reviewed as part of the loan, which is normal for any construction loan. That review is about the project being buildable and the numbers holding together, not about the builder's personal finances.
Who is the borrower?
The buyer. It is their construction-to-permanent loan, their rate lock and their permanent mortgage. The builder is the contractor on the project, which is what the builder already is.
When does the builder get paid?
Through the loan's draw process, at inspected milestones, as the build progresses. Each draw is tied to work in place and confirmed by inspection. The schedule for a specific project is set during review.
Can I keep my current lender for other projects?
Yes. This is a per-project decision. Run one project this way and keep everything else exactly as it is. If the first one works, run the second one. If it does not, you have lost nothing but a twenty-minute conversation.
Is there a fee for the builder?
No. Nothing changes hands between us. This is a handoff, not an arrangement. You hand a buyer with a financing question to someone who can answer it, and I review the project on its own merits.
What is the capital diagnostic?
Seven questions, twenty minutes, one project. Where your capital goes, how long it stays there, and what caps the next start. There is a printable version at /construction-loans/builders/capital-diagnostic so you can fill it in before we talk, or we do it together on the call.
Do you work outside New Jersey?
Yes. Sean originates in all 50 states. Most of the builders I talk to are in New Jersey, but the loan is not limited to it.
What is renovation-to-permanent?
The same single-close structure applied to an existing structure instead of a bare lot. The buyer purchases the property and finances the renovation in one loan, with draws at inspected milestones and one conversion to the permanent mortgage at the end. It fits gut renovations and additions with a buyer already attached.
SS

About the Author

Sean T. Shallis is a Mortgage Loan Originator (NMLS #2362814) with thirty years in real estate and mortgage, including time at one of the largest banks in the United States. He is a U.S. Army veteran and the creator of Rate Guardian AI. Opinions here are his own as an individual market observer.

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