Last updated: January 2026
Quick answer
Developers often make critical errors with large-balance construction loans by underestimating costs, mismanaging draw schedules, or lacking a clear exit strategy. These mistakes can delay funding or lead to project failure.
Understanding lender requirements, maintaining accurate budgets, and working with experienced private lenders can help you avoid these pitfalls.
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Why large-balance construction loans require extra care
Large-balance construction loans, which are often used for custom homes, multi-unit developments, or commercial projects, carry more complexity and risk than smaller-scale financing.
Developers must account for a variety of factors, including budgeting, permitting, draw timelines, and market conditions. Errors in any of these areas can cause funding delays, cost overuns, or loan defaults.
When seeking construction financing above $1 million, real estate developers must demonstrate an understanding of both the project’s financial structure and its operational demands.
Marquee Funding Group has financed a wide range of high-value construction loans with flexible underwriting, but even experienced borrowers can face setbacks when key risk factors are overlooked.
Lenders also place significant weight on developer experience
Developers seeking large-balance construction loans are typically expected to demonstrate a track record with projects of comparable size, scope, or complexity.
Limited experience can result in lower leverage, higher reserves requirements, or additional conditions, even when the underlying project is strong.
Avoid these common mistakes on large-balance construction loans as an experienced real estate developer
If you’re an experienced real estate developer operating through an LLC or Corporation and managing projects over $1M, avoiding these mistakes is essential to securing financing.
Mistake 1: Underestimating total project costs
The most common mistake on large-balance construction loans is underestimating total project costs.
When developers submit their loan request, they often focus only on hard costs, such as materials and labor. However, lenders should also consider:
- Soft costs (e.g., architecture, permitting, engineering)
- Contingency reserves
- Interest reserves
- Insurance and taxes during construction
For large projects, these costs add up fast. A weak or incomplete budget raises red flags for private money lenders.
Why it matters: If a loan request does not reflect the full scope of development expenses, a lender may lose confidence and reduce the loan amount or decline the deal.
How to avoid it:
- Use detailed cost breakdowns that include both soft and hard costs
- Build in a 10%–15% contingency buffer
- Consult with your general contractor and third-party estimator
Mistake 2: Failing to align draw schedules with project milestones
Construction loans release funds in phases based on progress, called “draws.” Large-balance projects often have more complex timelines, requiring a more structured draw schedule.
If the draw schedule is too aggressive or misaligned with actual construction stages, you may run out of funds before completing a phase. This can halt your project and delay future disbursements.
Key factors lenders review:
- Number and timing of draws
- Completion percentage required for each draw
- Third-party inspection requirements
- Reserve funds for interest carry or construction delays
How to avoid it:
- Work with your lender and contractor to build a realistic draw schedule
- Include a buffer between milestones to account for weather or permit delays
- Ensure your contractor understands the lender’s inspection process
Mistake 3: Ignoring the importance of interest reserves
In large-balance construction loans, monthly interest payments can become significant, especially if the project spans 12–24 months. Many private construction lenders require interest reserves to be built into the loan.
Some developers fail to account for this in their loan request or overlook interest carry in their pro forma. Without reserves, you’ll be expected to make monthly payments out of pocket, which can strain your cash flow.
Why lenders require interest reserves:
- Ensures timely loan servicing
- Reduces risk of default
- Aligns with the projected absorption period
How to avoid it:
- Request interest reserves in the original loan amount
- Calculate full interest costs based on estimated draw timing
- Build conservative timelines that allow for flexibility
Mistake 4: Not having a clear exit strategy
Lenders financing large construction loans expect a clearly defined exit plan. This means how you plan to repay or refinance the loan once the project is complete. Without this, your loan may not be approved.
Common exit strategies include:
- Sale of completed property
- Long-term refinance into a conventional or DSCR (debt service coverage ratio) loan
- 1031 exchange into another investment
Lenders assess:
- Projected post-construction value (ARV)
- Buyer demand or market comps
- Borrower’s experience and liquidity
How to avoid it:
- Present a detailed exit plan in your application
- Use realistic sales comps or refinance assumptions
- Have backup plans if the market shifts
Mistake 5: Overleveraging the capital stack
Real estate developers often try to maximize leverage to preserve cash or pursue multiple projects. However, when a large-balance construction loan exceeds a reasonable Loan-to-Cost (LTC) ratio, it raises concerns.
Most private lenders typically cap LTC at 70%–75%, depending on experience, property type, and location. Projects with high leverage and thin margins are more likely to experience cost overruns or delays.
Signs of overleveraging:
- Minimal borrower equity
- Dependence on preferred equity or mezzanine loans
- No contingency or cash reserves
How to avoid it:
- Invest at least 20% equity into the deal
- Avoid layering too many financing types
- Demonstrate strong liquidity and project experience
Mistake 6: Choosing the wrong lender
A final mistake many developers make is working with lenders who lack construction loan expertise or aren’t equipped to handle large-balance projects.
Traditional banks may require extensive documentation and move slowly. National lenders often reject unique properties or unconventional borrowers. The wrong lender may delay closing or impose terms that don’t fit your project timeline.
Why private lenders like Marquee Funding Group are ideal:
- Fast closings (often within days)
- Common-sense underwriting
- Custom loan structures for California developers
- No need for tax returns or W-2s
How to increase your chances of approval
To secure a large-balance construction loan successfully:
- Submit a full development budget with hard/soft costs
- Present a professional construction timeline
- Include a draw schedule with milestones and inspections
- Outline your exit strategy with sales or refinance data
- Show borrower liquidity and experience
- Work with a lender that understands construction
Work with a lender who understands real estate development
Large-balance construction loans require detailed planning, realistic budgeting, and a lender who understands the challenges of real estate development.
Avoiding these common mistakes can save you time, money, and stress, while increasing your chance of success.
For experienced developers and LLCs seeking private construction financing in California, Marquee Funding Group specializes in large-balance construction loans with fast approvals and flexible terms. Submit your loan scenario today.
Frequently asked questions: Large-balance construction loans
Q: What is a large-balance construction loan?
A large-balance construction loan typically refers to construction financing over $1 million used to build custom homes, multi-unit developments, or commercial properties.
Q: How do I qualify for a high-value construction loan?
Qualification depends on your project’s budget, draw schedule, exit strategy, and your experience and liquidity. Private lenders like Marquee Funding Group offer more flexibility than banks.
Q: Can I include interest reserves in my construction loan?
Yes, most private lenders allow you to finance interest reserves into your loan amount to cover monthly payments during construction.
Q: What’s the typical Loan-to-Cost ratio for a large construction loan?
Private lenders typically fund up to 70%–75% of the total project cost, depending on risk factors and borrower profile.