Construction loans are short-term loans that cover the cost of building a new home. These loans are usually shorter in duration and are paid directly to the contractor in installments, or “draws,” as building milestones are met. An inspection is typically required before each payment is released to the contractor. To learn more about how construction loans work, connect with one of our construction-certified banking partners.
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What Construction Loan Documents Do I Need?
When applying for a construction loan, lenders typically require several documents to assess your project and financial situation. Make sure you have these ready:
Personal Information
- Government-Issued ID (Driver’s License, Passport, etc.)
- Social Security Number
- Proof of Income (Recent Pay Stubs or Tax Returns)
- Employment Verification (Letter from Employer or Recent Paycheck History)
- Credit Report (Lenders Often Pull this Directly)
Financial Documents
- Bank Statements (Last 2-3 Months)
- Proof of Assets (Investment, Retirement Accounts, etc.)
- Liabilities Information (Existing Debts, Mortgage, Car Loans, etc.)
- Tax Returns (Typically for the Past 2 years)
Property Information
- Construction Plans (Detailed Blueprints or Plans for the New Build)
- Project Budget (Complete Breakdown of All Construction Costs)
- Building Permits (Local or State Permits for Construction)
- Land Deed or Purchase Agreement (Proof of Land Ownership or Contract if Buying)
Contractor Information
- Licensed Contractor Agreement (Detailed Contract with Your Builder/Contractor)
- Contractor’s License and Insurance (Proof of Contractor’s Qualifications)
- Construction Timeline (Estimated Schedule for the Project)
- Builder’s Cost Estimate (Breakdown of the Cost to Complete the Project)
Loan-Specific Requirements
- Down-Payment Information (Amount you Plan to Put Down on the Loan)
- Appraisal Report (Assessment of Land and Future Property Value)
- Lien Waivers (Documents Proving Payments for Labor and Materials)
- Title Insurance (Insurance Covering Property Title Issues)
Additional Documents
- Contingency Fund Plan (A Reserve Fund for Unexpected Expenses During Construction)
- Insurance Coverage (Builder’s Risk Insurance, Homeowners Insurance Once Completed)
Resources
Top Questions about Financing Your New Construction Build
Just as with a traditional mortgage, you must meet certain requirements related to credit score, debt-to-income ratio and more to qualify for a construction loan. Your lender will review your income, assets, liabilities and credit history, as well as order an appraisal.
You’ll also be asked to provide additional documentation related to the construction project, like your contract with the builder, construction plans and specifications. You can expect a slightly longer application process due to the additional information that needs to be reviewed.
If you meet the established guidelines for credit score, down payment, income and debt-to-income ratio (the amount of recurring debt you have relative to your monthly income), you may qualify for a construction loan. You’ll also need an appraisal of the property, a detailed plan and purchase contract for your construction project, and you must work with an established builder.
Do your research to find a builder that not only meet your needs, but also any requirements set by your lender. Your homebuilder should be experienced, licensed and insured. To find a builder in your area, check out the National Association of Home Builders (NAHB). You could also ask for recommendations from friends, family and real estate agents who specialize in new home construction. Or search online for highly rated builders, builder reviews and credentials.
You should feel comfortable asking a homebuilder about anything you feel is important. To start, choose two to three builders from your list of recommendations, and arrange to meet with them in person. A face-to-face meeting will give you a better feel for the builder and their experience.
Consider the following questions when interviewing builders for your project:
- Does the builder have proven experience building the style and quality of home you want?
- Do they meet state licensure and insurance requirements?
- What is their reputation in the community?
- Do they have a good rating with the Better Business Bureau?
- Can they provide references from past clients, suppliers and local banks?
- Is the builder a recipient of any industry awards?
- Are they involved in any professional associations?
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