What Does a Ground-Up Construction Loan Cost?
By Andrew J. Liersch III — Founder & CIO, Slingshot Investments. 10+ years in private lending, $500M+ funded. Former Wells Fargo Private Mortgage Banking, Bear Stearns, and Deloitte Consulting.
Short answer: In mid-2026, a private money ground-up construction loan typically prices at 9.5–11.5% interest and 1.5–3 points, plus a fee stack (documents, underwriting, appraisal, draw inspections, title) that usually lands between $8,000 and $15,000 on a typical San Diego SFR build. But the number that moves your total cost most isn’t the rate — it’s how interest is charged. A loan that charges interest only on your drawn balance can cost $30,000+ less over a 12-month build than an identically priced loan that charges interest on the full amount from day one. Ask that question before you compare rates.
This is the construction companion to our fix-and-flip cost breakdown — if you haven’t read What Does a Fix-and-Flip Loan Cost?, the fee-stack logic there applies here too. What’s different on ground-up: the build runs longer, the balance ramps instead of funding all at once, and the interest reserve changes how you experience the payments.
What are ground-up construction loan rates in 2026?
Construction pricing keys off the same market as bridge and fix-and-flip money, usually with a modest premium for the longer timeline and dirt-start risk. With bridge loan rates at a 12-month low — a 10.07% national average as of June 2026, and San Diego averaging under 10% — most ground-up construction loans we see are pricing in the 9.5–11.5% band. Where you land inside that band comes down to leverage, your build track record, whether the lot is entitled with permits in hand, and the strength of the exit.
Points run 1.5–3 of the loan amount, charged at closing. Experienced builders with repeat business and clean files sit at the bottom of the range.
How does the interest reserve affect cost?
The interest reserve doesn’t change what interest costs — it changes who writes the check. The reserve is part of your loan balance, so you’re paying interest on the reserve itself, which adds a small compounding cost. In exchange, your operating cash stays free for the thing that actually kills construction budgets: overruns and change orders. On a 12-month SFR build, the compounding cost of a reserve is typically a few thousand dollars — cheap insurance against a mid-project liquidity squeeze.
As-drawn interest vs. full-balance interest: the biggest cost lever
Here’s the question that separates construction lenders: do you pay interest on the full loan amount from day one, or only on what’s been drawn?
On a construction loan, your balance ramps. Using the Del Cerro spec build from our construction loan structure article — $850,000 total loan, $210,000 land advance at closing, holdback released across five draws over 12 months:
| Interest charged on | 12-month interest at 10.5% | |
|---|---|---|
| As-drawn (Dutch-style) | Outstanding balance only (~$517K average) | ~$54,000 |
| Full-balance | Entire $850,000 from day one | ~$89,000 |
| Difference | ~$35,000 |
Same rate. Same points. Same loan amount. $35,000 apart. A full-balance loan at 9.5% is more expensive than an as-drawn loan at 11% on this project — which is why comparing construction loans by rate alone is how builders overpay. Always ask how interest accrues on the undrawn holdback.
What’s in the fee stack?
Beyond rate and points, expect:
| Fee | Typical range |
|---|---|
| Loan documents | $1,000–$2,000 |
| Underwriting / processing | $995–$1,995 |
| Appraisal (with completed-value opinion) | $800–$1,500 SFR; more for multifamily |
| Draw inspections | $200–$300 per draw |
| Title, escrow & recording | Scales with loan size (~$5,000–$7,000 on an $850K loan) |
| Budget / feasibility review | $0–$750 |
None of these individually moves the needle. Together they typically total 1–2% of the loan — real money, but small next to the interest-accrual question above.
Full worked example: what the Del Cerro build actually pays
$850,000 loan, 10.5%, 2 points, 12-month term, as-drawn interest, sale exit at $1.6M:
| Cost item | Amount |
|---|---|
| Points (2.0) | $17,000 |
| Interest (as-drawn, 12 months) | ~$54,000 |
| Lender fees (docs, underwriting) | ~$2,500 |
| Draw inspections (5 × $250) | $1,250 |
| Appraisal | ~$1,000 |
| Title, escrow & recording | ~$6,000 |
| Total financing cost | ~$82,000 |
Against roughly $600,000 of gross spread ($1.6M completed value less $1M project cost), financing runs about 14% of the spread — before selling costs. Now stress it: if the build runs to month 16 instead of 12, add ~$28,000 of interest (four months on a near-full balance) plus possible extension fees. Schedule slip is the most expensive line item on this table, and it isn’t on the table. Same conclusion we reached on flips: time, not rate, is the real margin killer — and on ground-up, the timeline is longer and the balance is bigger, so the effect compounds.
Fast draws are part of the cost equation too: every week a completed phase waits on a draw is a week of interest on the full outstanding balance with no progress on site. (See how fast a private money loan can close — the same speed difference shows up draw after draw.)
How do construction loan costs compare to fix-and-flip loan costs?
| Fix-and-flip | Ground-up construction | |
|---|---|---|
| Rate | 9–12% | 9.5–11.5% |
| Points | 1.5–3 | 1.5–3 |
| Typical term | 6–12 months | 12–18 months |
| Interest accrual | Depends (smaller holdbacks) | As-drawn matters enormously |
| Interest reserve | Sometimes | Nearly always |
| Draws | 3–5 rehab draws | 5+ milestone draws |
The headline pricing is nearly identical. The cost structure isn’t — longer terms, ramping balances, and reserves mean the contract mechanics matter more than the rate sheet.
Frequently asked questions
Is a construction loan more expensive than a bridge loan? Slightly, at the rate level — typically a 0.25–0.75% premium for the construction risk. But a bridge loan funds fully at closing, so on a ramping-balance project, an as-drawn construction loan can cost less in total interest than a same-rate bridge loan.
Do I pay interest on the interest reserve? Yes — reserve funds are part of the loan balance once drawn to make payments. The compounding cost on a 12-month SFR build is usually a few thousand dollars.
Can I pay the loan off early without penalty? Most private money construction loans have no prepayment penalty or a short minimum-interest period (e.g., 3–6 months). Confirm it in the note — finishing early should be rewarded, not penalized.
Are construction loan costs deductible? Interest and fees on a business-purpose construction loan are generally capitalized into or deducted against the project — talk to your CPA about your structure. We don’t give tax advice.
Slingshot Investments originates and arranges business-purpose ground-up construction loans on non-owner-occupied residential and commercial real estate. California DRE Broker License #02002790. All loans subject to borrowers and underlying collateral meeting current underwriting criteria. Rates and terms subject to change without notice. This article is general information, not a loan commitment or financial advice.
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