In the days when there were many different construction lending options, some lenders allowed this. At this point in time, it can severely limit your construction loan options if you do more than push around some dirt, do site improvements like utilities and retaining walls, or do anything more than a slab foundation. Another possible problem with starting the build “out of pocket” is that when you are applying for a construction loan, your reserves have been depleted, and your file is not as strong.