Land Development & Construction Loans

This section covers how raw dirt becomes a neighborhood. These are high-risk, high-interest loans.Land Development Loans: The purpose: To pay for clearing the land, installing roads, sewers, and electricity.The Challenge: There is no house yet to act as collateral, just dirt. Therefore, lenders charge higher rates and require the developer to have a lot of their own cash invested.Construction Loans: These loans usually last only 12–18 months.Draw System: The borrower doesn't get $500,000 all at once. They get "draws" as work is completed (e.g., $50k for the foundation, $50k for framing).The borrower usually pays interest only on the money drawn so far.