Which Properties Can You Build With a Construction Loan?

Most private construction lenders focus on residential investment property: single-family homes, small multifamily buildings with two to four units, and townhomes. Condos are financed by fewer lenders, and larger apartment buildings and anything with commercial space usually need a different kind of loan. Property type matters because it changes the comps, the exit and the risk.

Usually the easiest: single-family homes

Detached single-family homes are the most common construction loan. They have lots of comparable sales, a wide pool of buyers and renters, and simple appraisals. That makes the after-completion value easier to support and the exit easier to believe.

Often eligible: two to four units and townhomes

Duplexes, triplexes and fourplexes are popular with build to rent investors because one lot produces several rents. Appraisals may weigh rental income as well as sales comps. Townhomes, including those in a planned community with an HOA, are also commonly financed. Lenders may review the HOA rules, especially any limits on renting.

Harder or case by case: condos and specialty builds

Small condo projects can be financed by some private lenders, but they add layers: condo documents, HOA formation, and selling or renting units one at a time. Modular homes may be accepted depending on the lender and how the home is set on its foundation. Manufactured homes, buildings that mix homes with a meaningful amount of commercial space, and five-plus unit apartments usually fall outside standard residential construction programs.

Also outside these programs: owner-occupied homes, which are not eligible for business-purpose construction loans. Land-only purchases with no near-term build plan usually need a land loan instead.

RSC Private Lending's New Construction program covers new 1-4 unit homes, townhomes and condos built for investment, on entitled land with a survey.

Example

Example (illustrative numbers only): An investor compares two plans for the same lot. Plan A is one 2,200 square foot single-family home, expected to sell for $550,000. Plan B is a duplex with two 1,300 square foot units, expected to rent for $2,100 each. Both are commonly financed, but the lender will appraise Plan A mainly on sales comps and look closely at rent comps for Plan B.

What this means for you

Confirm your property type is eligible before you pay for plans. If your project is a condo, modular or mixed-use, ask early. The answer can change your loan, your leverage and your timeline.

Not sure your project type fits? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.