Huntsville has grown into Alabama’s largest city, driven by aerospace, defense and research employers. New residents need places to live, and builders across Huntsville, Madison and the surrounding parts of Madison and Limestone counties have been adding homes to keep up.
For investors, North Alabama offers lower land costs than many larger metros, with steady demand for both sale and rental homes. This guide covers how ground-up construction financing works there and what Alabama-specific rules to know.
How Ground-Up Construction Financing Works
A ground-up construction loan is short-term, business-purpose financing for building a new investment property. The lender funds the lot purchase, if any, then releases construction money in draws as each stage of work is completed and inspected.
On qualified projects, the program Borrowers Capital offers access to can finance:
- Up to 100% of the land purchase
- Up to 100% of the approved construction budget
- Up to 75% of as-completed value, the overall cap
Qualification starts at a 600 credit score and one completed project. Plan on verified liquidity of about 10% of the construction budget, plus six months of payments, plus closing costs and third-party fees. First-time builders may still qualify at lower leverage, reviewed case by case.
A Huntsville-Area Example
| Item | Amount |
|---|---|
| Lot purchase | $65,000 |
| Construction budget | $290,000 |
| Total project cost | $355,000 |
| Appraised completed value | $495,000 |
| 75% of completed value | $371,250 |
The project fits under the value cap with about $16,000 of room. Lower lot prices are one reason the math often works in North Alabama, but finished values vary a lot by school zone and subdivision. Use recent new-construction sales close to your lot.
Alabama-Specific Details
Home builder licensing
Alabama requires a license from the Alabama Home Builders Licensure Board for residential construction when the cost of the job exceeds $10,000. The law specifically covers people who build homes for sale, so spec builders need a license or a licensed builder. Check your builder’s license with the board before you sign a contract.
Permits and jurisdiction
The City of Huntsville, the City of Madison and the surrounding counties each handle permits for their own areas. Huntsville’s city limits also cross county lines, so confirm which building department covers your lot before you buy. In unincorporated areas, also check whether the lot has public sewer or needs a septic permit.
Recording taxes
Alabama charges recording taxes when documents are filed:
- Deed tax: $0.50 per $500 of value
- Mortgage tax: $0.15 per $100 of the loan amount
On a $355,000 construction loan, the mortgage tax works out to about $533. Add title insurance, recording and attorney or title company fees to your cash-to-close estimate.
Tips for Building in North Alabama
- Watch the soil and slope. Rocky ground and hilly lots east of Huntsville can raise site costs.
- Price comps by school zone. Buyers in this market pay close attention to schools.
- Plan your exit early. Strong rental demand makes build-to-rent an option. A refinance into a DSCR rental loan can be a backup if a sale takes longer.
Price Your Huntsville Build
Run your lot cost, budget and expected value through the 100% Financing Calculator, read how 100% land and build financing works, or submit your project for a preliminary review.
Sources: Alabama Home Builders Licensure Board, Alabama Department of Revenue: Recordation Tax.
Disclosure
Borrowers Capital LLC provides access to business-purpose real estate financing through correspondent and private lending channels. Program availability, leverage, pricing, fees, loan amounts and approval requirements vary by transaction and are subject to applicable lender guidelines, borrower and property eligibility, valuation, due diligence, underwriting and final approval. References to 100% financing describe the potential financing of eligible project costs and do not guarantee a zero-cash transaction or loan approval. Borrowers Capital LLC may receive compensation in connection with arranging a transaction. This article is general information and does not constitute a commitment to lend, an offer of credit, or financial, legal or tax advice.