Houston is one of the largest housing markets in the country, and it builds a lot of new homes. Townhomes on infill lots inside the Loop, new single-family homes in suburbs like Katy, Cypress and Pearland, and build-to-rent projects all draw investor capital.
Houston also works differently from most cities. This guide covers how ground-up construction financing works for Houston-area projects and the local details that affect cost and timing.
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 phase 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, which caps the total loan
The starting point is a 600 credit score and one completed project. Loans go up to $3 million, with larger projects considered by exception.
A Houston Example
| Item | Amount |
|---|---|
| Lot purchase | $85,000 |
| Construction budget | $300,000 |
| Total project cost | $385,000 |
| Appraised completed value | $540,000 |
| 75% of completed value | $405,000 |
The land and build fit under the cap with $20,000 to spare. If the appraisal came in at $500,000, the cap would drop to $375,000, leaving a $10,000 gap to cover.
How much liquidity you need
Lenders want to see that you can carry the project. The current guideline is 10% of the construction budget, plus six months of payments, plus closing costs and third-party fees. Using the example above and an illustrative 13% rate:
- 10% of the $300,000 budget = $30,000
- Six months of interest on a $385,000 loan (about $4,170 a month) = about $25,000
- Total: about $55,000, plus closing costs and fees
These funds generally need to be verified, not spent, at closing. The 100% Financing Calculator runs this math for your own numbers.
Houston-Specific Details
No zoning, but plenty of rules
Houston has no traditional zoning code. Land use is shaped instead by the city’s development ordinances, including Chapter 42 subdivision and lot rules, and by deed restrictions. Deed restrictions are private rules recorded against a property, and many neighborhoods enforce them through HOAs or civic clubs. They can limit lot splits, home size, setbacks or building type.
Before you buy a lot, have your title company pull the deed restrictions. Lenders and appraisers will look at them too.
Floodplain elevation
After Hurricane Harvey, Houston changed its floodplain rules in Chapter 19 of the city code. New construction in the 500-year floodplain must be built two feet above the 500-year flood elevation. Unincorporated Harris County has its own, separate floodplain rules.
Elevation requirements can add foundation and fill costs, so check the lot’s flood zone and get an elevation estimate before you set your budget.
Contractor licensing and permits
Texas has no statewide general contractor license, but electricians and HVAC contractors are licensed by TDLR and plumbers by the Texas State Board of Plumbing Examiners. Inside city limits, permits run through the Houston Permitting Center. Suburbs and unincorporated areas have their own processes.
Closing costs and taxes
Texas has no real estate transfer tax, and title insurance premiums are set by the state. Property taxes are relatively high, so budget for taxes during construction and through the sale or lease-up.
What a Strong Submission Includes
- Lot contract, survey and deed restrictions
- Plans, specs and permit status
- A line-item budget with contingency
- Builder history, insurance and trade licenses
- Comparable new-construction sales nearby
- A clear exit, including a possible refinance into a DSCR rental loan
Doing flips in Texas too? See Fix-and-Flip Loans in Dallas–Fort Worth.
Price Your Houston Build
Learn more about our ground-up construction program, or submit your project for a preliminary review.
Sources: Freese and Nichols: New City of Houston Floodplain Regulations Post-Harvey, Houston Permitting Center, Texas Department of Licensing and Regulation.
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.