Updated Rates as of August 2026
Investor construction loans typically cost 8.99%–13.5% interest-only plus 0–3 points, with interest on the full commitment including undrawn construction holdback. Budget 12–18 months of carry on ground-up and spec builds.
Jaken Finance Group offers up to 100% LTC on qualified files capped at 75% LTARV. See new construction loans for investors.
Cost drivers on a spec build
| Driver | Why it matters |
|---|---|
| IO on undrawn balance | You pay interest on committed funds before draws |
| Draw inspections | 8–12 draws on a 12-month build |
| Extension fees | Permit delays are common — model 3-month extension |
| Builder’s risk insurance | Required before first draw |
Spec home construction loans · Construction calculator hub
Worked carry — $385K spec build, 11 months
| Phase | Months | Loan balance (avg) | IO at 10.75% | Cumulative |
|---|---|---|---|---|
| Foundation / shell | 4 | ~$155K | ~$1,389/mo | ~$5,556 |
| MEP / drywall | 4 | ~$280K | ~$2,508/mo | ~$10,588 |
| Finish / CO | 3 | ~$310K | ~$2,777/mo | ~$18,919 |
Add 0–3 points on commitment (~$0–$11,550 on $385K) plus 8–12 draw inspections at $250–$400 each.
Exit cost comparison
| Exit | Product | Rate band |
|---|---|---|
| Sell to retail buyer | Payoff construction note | N/A |
| Sell to BTR fund | Payoff at close | N/A |
| Hold as rental | DSCR refi | 5.75%–10.5% |
| Another spec | New construction note | 8.99%–13.5% IO |
Jaken Finance Group: up to 100% LTC qualified, 75% LTARV cap, 10–14 business day close. Spec home construction · construction-to-DSCR · ground-up construction guide
Construction vs purchase-rehab cost difference
| Cost driver | Purchase-rehab flip | Ground-up construction |
|---|---|---|
| Draw count | 4–6 | 8–12 |
| Carry months | 6–9 | 12–18 |
| Insurance | Landlord policy | Builder’s risk required |
| Interest base | Full commitment common | Full commitment common |
| Extension risk | Medium | High (permits) |
Budget 20% longer timeline than GC promises — permit delays are the norm, not the exception.
Luxury and jumbo construction
Jaken Finance Group funds luxury fix-and-flip and jumbo new construction up to $2.5M all-in on qualified files at 8.99%–13.5% IO, capped at 75% LTARV. Luxury jumbo parameters · spec home BTR · newbuild hub
Draw schedule friction — hidden construction costs
Each draw triggers inspection ($250–$400) plus interest on disbursed balance. On a 10-draw spec build, inspections alone add $2,500–$4,000. Interest accrues on every dollar drawn — peak balance mid-project drives IO, not starting loan amount. Model average outstanding balance, not max commitment.
Spec vs build-to-rent — different exit costs
Spec builders exit to sale and pay realtor + transfer tax (~8% of ARV). Build-to-rent exits to DSCR refi at 5.75%–10.5% (~3% closing friction). Construction IO at 8.99%–13.5% for 12 months on $400K average balance ≈ $43K–$54K before refi or sale. New construction hub · spec home loans · construction timeline · fees schedule
Interest on undrawn balance — the hidden carry line
Most investor construction notes charge IO on the full loan commitment, not just disbursed funds. On a $480,000 commitment with $120,000 drawn in month one:
| Month | Drawn balance | Billed IO base | IO at 11% |
|---|---|---|---|
| 1 | $120,000 | $480,000 | ~$4,400 |
| 6 | $310,000 | $480,000 | ~$4,400 |
| 10 | $460,000 | $480,000 | ~$4,400 |
You pay interest on undrawn holdback from day one. Ask whether your lender interest-reserves the first 6 months or requires you to fund IO from liquid capital.
Worked example — 11-month spec build in suburban Atlanta
| Phase | Months | Avg balance | IO at 10.75% |
|---|---|---|---|
| Site prep + foundation | 3 | $165,000 | ~$4,434/mo |
| Framing + MEP | 4 | $320,000 | ~$2,867/mo |
| Finish + CO | 4 | $410,000 | ~$3,673/mo |
| Total IO | 11 | — | ~$42,800 |
| 2 points on $440K commitment | — | — | $8,800 |
| 10 draw inspections @ $300 | — | — | $3,000 |
| Builder’s risk (11 mo) | — | — | ~$2,200 |
| All-in construction finance | — | — | ~$56,800 |
Sale at $565K ARV minus $440K all-in minus $56,800 finance minus 8% sale costs ($45K) = **$23K net** — thin margin that needs accurate timeline modeling.
Permit delay contingency — budget 20% longer
| Market | Common delay | Cost impact |
|---|---|---|
| Chicago | RLTO, zoning | +2–4 months IO |
| Florida | Wind code, CO backlog | +1–3 months |
| Charlotte | Stormwater review | +1–2 months |
| Texas | MUD utility tie-in | +2–5 months on raw land |
Extension at 0.5%–1% fee plus continued IO at 8.99%–13.5% — model one extension into every ground-up pro forma.
Construction-to-DSCR exit cost stack
| Line | Spec sale exit | BTR / DSCR hold exit |
|---|---|---|
| Construction IO | ~$43K–$55K | Same |
| Sale commission | 5%–6% of ARV | $0 |
| DSCR refi closing | $0 | ~3% of loan |
| Long-term rate | N/A | 5.75%–10.5% |
| Hold cash flow | One-time profit | Monthly NOI |
Jaken Finance Group funds construction up to 100% LTC qualified, capped at 75% LTARV, closing in 10–14 business days on complete files.
Change orders — the silent budget killer
| Change type | Typical cost impact | Lender response |
|---|---|---|
| Upgrade countertops | +$3K–$8K | Sponsor funds unless re-underwritten |
| Add bathroom | +$15K–$25K | New plan review + appraisal revision |
| Foundation issue | +$20K–$60K | Stop draws until resolved |
| Material escalation | +5%–15% on lumber/trades | Sponsor contingency or loan mod |
Budget 10% contingency in the loan budget — change orders without reserves trigger extension at 8.99%–13.5% IO.
Vertical vs horizontal build — cost structure difference
| Build type | Loan structure | Carry pattern |
|---|---|---|
| Vertical (spec home) | Single draw schedule | IO ramps with draws |
| Horizontal (3-lot subdivision) | Per-lot sub-loans or phase releases | IO on each phase |
| Tear-down rebuild | Demo + build in one note | Higher inspection count |
Horizontal projects need phase completion milestones — lender will not fund lot 3 vertical while lot 1 is still framing.
Builder’s risk and GL — insurance cost lines
| Policy | Typical annual cost | Required when |
|---|---|---|
| Builder’s risk | $2,000–$8,000 | Before first draw |
| General liability | $1,500–$4,000 | Before first draw |
| Workers comp | If GC has employees | GC responsibility |
Lapsed builder’s risk stops all draws — renew 30 days before expiration on 12-month builds.
Material escalation reserve — 2026 planning
Lumber, concrete, and labor volatility adds 5%–12% to mid-project budgets:
| Mitigation | How |
|---|---|
| Fixed-price GC contract | Shifts risk to contractor |
| Contingency line in budget | 10% of hard costs |
| Early material buy | Sponsor funds storage |
| Loan modification | Re-underwrite ARV if scope grows |
Spec builders who lock fixed-price contracts before loan close reduce extension risk on 8.99%–13.5% construction notes.
Worked example — change order mid-build
| Event | Budget impact |
|---|---|
| Original hard cost budget | $385,000 |
| Engineered foundation upgrade | +$28,000 |
| Sponsor contingency (10%) | $38,500 available |
| Net after change | $9,500 contingency left |
| Extension if 2 mo delay | +$8,800 IO at 11% |
Without contingency, sponsor wires $28K mid-project or construction stops.
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