A ground-up multifamily deal in Houston does not fail at the construction loan. It fails eighteen months later, when the takeout lender sizes the permanent loan on income and the number comes back smaller than the construction balance.
This guide covers who actually lends on Houston multifamily construction, how those loans are sized, a worked 64-unit example with the arithmetic shown, and the refinance gap that decides whether the deal pencils.
Who lends on a multifamily construction loan in Houston, Texas?
Four lender types fund Houston multifamily construction: regional and national banks, debt funds, life insurance companies on larger stabilized-exit deals, and HUD through the 221(d)(4) program. Banks price cheapest but require recourse and a deposit relationship. Debt funds go higher on leverage, non-recourse, at a meaningful premium. HUD is slowest and cheapest.
The practical split for a mid-sized Houston deal is banks versus debt funds, and it turns on recourse. A regional bank will typically fund 60-70% of cost at a spread over SOFR in the low-to-mid 300s, but wants full or partial repayment guarantees from the sponsor and often a treasury relationship. A debt fund will go to 70-80% of cost, non-recourse beyond standard carve-outs, at a spread several hundred basis points wider. You are buying balance-sheet protection with rate.
Houston-specific factors that move a construction credit: the submarket's absorption history, whether the site is inside a floodplain or affected by post-Harvey detention requirements, the general contractor's local track record, and — increasingly — the property insurance quote, which underwrites into the stabilized NOI and therefore into the takeout loan.
How is a Houston multifamily construction loan sized?
Construction loans size on loan-to-cost, not loan-to-value. A lender takes the total development budget — land, hard costs, soft costs, contingency, and capitalized interest — and lends a percentage of it, typically 60-75%. The sponsor funds the balance as equity, usually first, before any loan proceeds are drawn.
Total development cost is the denominator, and it includes items sponsors routinely leave out of early models:
- Land and closing costs, at basis, not at appraised value.
- Hard costs, under a guaranteed maximum price contract with a licensed general contractor.
- Soft costs — architecture, engineering, permits, impact fees, legal, financing fees.
- Contingency, typically 5-10% of hard costs. A lender will size it for you if you understate it.
- Capitalized interest reserve, funded inside the loan to service the debt through construction and lease-up, since the property produces no income until units deliver.
What do the numbers look like on a $12M construction loan for 64 units?
At a $17,000,000 total development cost, a $12,000,000 construction loan is 70.6% loan-to-cost, leaving $5,000,000 of sponsor equity. Roughly $1,000,000 of that loan is not construction money at all — it is the capitalized interest reserve that services the debt until the property stabilizes.
The full arithmetic on a 64-unit Houston deal, which you can check line by line:
| Line | Amount | Note |
|---|---|---|
| Total development cost | $17,000,000 | ~$265,600 per unit |
| Construction loan | $12,000,000 | 70.6% of cost |
| Sponsor equity | $5,000,000 | 29.4%, funded first |
| Interest reserve (inside loan) | ~$1,000,000 | ~55% average outstanding, 24 months, ~7.5% all-in |
| Stabilized gross potential rent | $1,497,600 | 64 units at $1,950/month |
| Less vacancy and collection loss, 7% | $1,392,768 | effective gross income |
| Less operating expenses, ~38% | $863,516 | stabilized NOI |
| Value at a 5.00% cap rate | $17,270,000 | a $270,000 margin over cost |
That last line is the honest state of 2026 development math: a competently executed deal clears its own cost by a low single-digit margin. There is no room for a 10% budget overrun, and that is before the refinance test below.
What is the refinance gap, and why does it kill Houston deals?
The refinance gap is the difference between the construction loan balance and the permanent loan the stabilized income actually supports. Construction debt sizes on cost; permanent debt sizes on DSCR. When income-based sizing comes in below the construction balance, the sponsor must fund the difference in cash at maturity.
Run the takeout on the same deal. Stabilized NOI is $863,516. A permanent lender underwriting to a 1.25x DSCR minimum will allow annual debt service of $863,516 ÷ 1.25 = $690,813. At 6.50% on a 30-year amortization, that debt service supports approximately $9,100,000 of permanent debt.
Against a $12,000,000 construction balance, that is a $2,900,000 gap — cash the sponsor must write at maturity, or cover with a supplemental, a rate buydown, or a sale.
It is worth seeing why the gap exists rather than treating it as bad luck. Try refinancing the full $12,000,000 at the same 6.50% over 30 years: debt service is about $910,200 a year, against $863,516 of NOI. That is a 0.95x DSCR — the property does not cover its own debt service, and no permanent lender funds it. The construction loan was never wrong; it was sized on a different variable.
Three things close the gap, and all three are decided before you break ground: more equity in the capital stack, a rate environment that cooperates at maturity, or rents that beat the underwriting. Only the first is within your control, which is the argument for testing the takeout at several rate and cap-rate scenarios in the underwriting calculator before the construction loan is signed, not after.
How do you get competing construction quotes without calling twenty lenders?
Construction lending appetite is narrow and moves quarter to quarter — a bank that funded a 64-unit Houston deal last spring may be out of the asset class this quarter, and there is no public list of who is in. Sequential calls surface that the slow way. Matching a packaged deal against current program criteria surfaces it in one pass.
This is the work a commercial mortgage broker does, and it is the work YieldStack does: one submission is pre-screened for bankability, matched at the program level against 5,000+ loan programs, and routed only to the lenders whose current mandate covers ground-up multifamily construction at your size and location. Competing terms come back side by side rather than one at a time, and the median time to a first lender offer is under an hour. There is $0 upfront and a 0.50-1.00% success fee only when the loan closes.
Construction is exactly the kind of deal that needs a packaged credit narrative — the GC's résumé, the absorption case, the takeout analysis — because a lender's screen will reject an incomplete story before a human reads it. That packaging is broker work, and it is the difference between a deal that gets quoted and one that gets ignored.
The bottom line
Houston multifamily construction debt is available from banks at lower cost with recourse, and from debt funds at higher leverage without it. Size on cost, model the takeout on income, and treat the refinance gap as the real underwriting question — because on a $12,000,000 loan against $863,516 of stabilized NOI, it is nearly $3,000,000.
Submit your construction deal at YieldStack. $0 upfront — 0.50-1.00% at closing only.