Why New Construction Loans for Investors Are Booming in 2025

Let's discuss the open secret that successful brokers are leveraging to dominate in 2025's competitive market: new construction loans for investors. Through April 2025, the U.S. is seeing a mind-boggling shortage of 1.5 million housing units (National Association of Home Builders), and conventional lenders are taking 50+ days to close traditional mortgages. At the same time, the best investors are scooping up property and starting new constructions quicker than ever—and they're doing it by taking advantage of the speed, flexibility, and construction loan tax advantages most brokers never talk about.

At RCN Capital, we've seen brokers employ new construction funding for competitive markets to not only survive, but thrive in today’s market landscape. Let's dissect why this niche is blowing up right now—and how you can utilize it to tie in loyal customers and beat competitors.

The Current Market Landscape

As we enter 2025, the housing industry is entering recovery from post-pandemic inventory shortages. The latest reports indicate that the housing market is set to experience a massive injection of new builds, with a projected 1.1 million homes constructed—a 13.8% increase from 2024. This is being fueled by the chronic shortage of housing and the increased demand for contemporary, energy-efficient homes.​

For us in the mortgage business, this increase represents a golden opportunity. By opening up new construction loans to investors, we can assist our clients in tapping into this growing market, while our own portfolios also grow.

Benefits of New Construction Loans

You may be thinking now, "What's special about new construction loans?" Here are the benefits of a construction loan broken down:

1. Customization and Modern Appeal: Investors can tailor properties to fit today's market needs, adding the latest trends in design and energy-saving features that appeal to today's buyer.​
2. Potential for Higher Returns: New buildings tend to have higher selling prices and rental rates, which means higher returns on investment.​
3. Tax Advantages: The construction loan tax advantage is the industry's best-kept secret. Construction loan interest paid during the construction phase may be deductible, but under some limitations.
4. Meeting Market Demand: With the continuous shortage of housing, new builds plug the gap, and thus they are very much in demand in most areas.
5. Lock In Costs Before Prices Rise (Again): The cost of building materials is expected to increase another 6% this year. With investors' new construction loans, customers can lock in today's costs of lumber, concrete, and labor—a step that's saved our partners' customers an average of $36,000 per project this year.

Navigating Construction Loan Tax Benefits

Let's take a closer look at tax advantages. One important benefit that can increase the appeal of these loans to investors is the tax benefit associated with construction loans. During the building phase, interest paid on a construction loan used to build a house is typically deductible. When you combine this with bonus depreciation on new builds, you have a compelling pitch that will make investors pay attention.

As a mortgage expert, walking your clients through these tax subtleties not only enhances the value of your services but also positions you as a trusted advisor in their investment process.

Strategies for Securing Construction Loans

Obtaining construction loans may appear intimidating, but it's completely within reach with the proper strategy. Here are some tips to assist your clients in navigating the process:

1. Strong Financial Profile: Lenders prefer borrowers with a good credit rating and solid financial standing. Getting clients to have a sound financial profile helps increase their chances of getting their loans approved.​
2. Comprehensive Project Plan: Having a thorough plan that lays out the building schedule, budget, and anticipated results shows forethought and lessens lender-perceived risk.
3. ​Experienced Team: Having well-established contractors and builders involved in the project gives it credibility and assures lenders of its viability.
4. Adequate Down Payment: A large down payment not only minimizes the loan but also indicates the investor's seriousness about the project.​

By assisting clients in these areas, we can streamline the loan approval process and foster successful investments.

The Competitive Edge for Mortgage Brokers

For mortgage brokers, offering new construction financing in competitive markets sets you apart from the competition. Here's how:

• Diversification: Adding construction loans to your arsenal enables you to cater to a wider client base, ranging from experienced investors to first-time developers.
• Higher Loan Amounts: New build loans tend to involve greater amounts, which translates to higher commissions and profit.​
• Long-Term Client Relationships: By guiding clients through intricate construction projects, we earn their trust and become go-to professionals for future financing purposes.​

In the ever-changing real estate world, being ahead involves seizing opportunities that bring value to our customers and expansion to our businesses. New construction loans are exactly this type of opportunity, offering a route to fulfill market needs, benefit from tax advantages, and gain significant returns.

At RCN Capital, we lend to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate professionals. If you are looking to provide new construction financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners. Connect with us today to discuss our real estate financing solutions and how we can help you grow your business.