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The Top 3 Sources for Construction Financing



When it comes to financing your construction project, the number of lending options can make your head spin – local lenders, government funding, savings and loan associations, grants – the list can go on and on.

Whether you work in community development, revitalize downtown areas, or are just an investor in real estate, it is important to educate yourself on utilizing unique debt options during construction and once the project stabilizes and converts to permanent financing.

Today, we’ll break down three of the most common types of financing sources and what factors to consider when determining the best fit for your project.


1. Work with a local lender, such as a community bank or a national lender before, during, AND after construction.

  • Under this choice, you typically pay just your monthly interest-only payment based on the outstanding balance during construction, with no principal pay-downs. Say it’s 12 months of construction – you pay interest-only for 12 months.
  • When the project achieves stabilization or is completed, you will convert to permanent financing (principal + interest.) Local lenders usually cannot exceed 30-year amortizations, so you must evaluate the cash flow using both available options.

2. Work with a local lender for the interest-only period, which would be before and during construction.

  • After construction, you use government-backed permanent financing from HUD or USDA, where they pay off the local bank and take over.

3. Use government-backed financing only – through HUD or USDA before, during AND after construction.

  • HUD and USDA offer 40-year amortized loans with fixed rates, but the application process is substantially longer than working with your local lender.

How do you choose what’s right for you?


Community size

If your community is considered rural, (30,000 people or less) you qualify for a USDA loan.

Project type

If 30% of your project building’s square footage is allocated to commercial business, you most likely will not qualify for HUD financing.
On mixed-use projects, such as a multi-family unit plus commercial, keep in mind what percentage is commercial. HUD wants to see projects that are 20% commercial or less.


Lots of time? HUD or USDA financing from the beginning of construction has a closing period that is considerably long. It could take up to 12-24 months. With a local lender, the paperwork, reviewing, and due diligence process could be finished within 2-3 months.


A government-backed loan has higher fees, but typically a lower long-term fixed interest rate. If you’re able to wait and pay upfront, thus recouping that money over time, HUD or USDA will work for you. If not, try a more traditional route, like a local lender.

Bush Construction is here to help.


Our team can be on your side from the time you begin evaluating an existing structure or analyzing the bare ground you want to build on. Bring your ideas to Jon Davidshofer. He can give feedback and take you to the next level to discuss applicable funding options – starting with the top 3 mentioned here. Additional funding sources can be explored later. (State and Federal tax credits and grants.)

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