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Construction Loan Requirements: Dealing With the Lender

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When deciding to build your own home the very first step you must undertake is acquiring the financing. Very few people have the kind of funds needed to start a construction project of such scale. Banks will make sure that you meet certain construction loan requirements before they will go forward with the loan.

Construction Loan Requirements

One construction loan requirement is documentation of income. Much like a real estate loan banks will look very carefully at your financial history before agreeing to a construction loan. For people who receive a standard paycheck most banks will require at least six weeks worth of pay stubs to evaluate your current income. They will also usually require three years of tax returns to get a good idea of your long-term income status.

For people who are self employed a bank will probably seek at least three years of sole proprietor tax information, or S-Corp returns, and two years worth of bank statements as a construction loan requirement.

Property information will also factor in. One major construction loan requirement is proof of ownership for the lot on which the home will be built. While some banks may allow additional loans for the purchase of the land this will limit your ability to turn the construction loan into a traditional mortgage after the work have been complete. To prove ownership of the land a simple property deed will suffice.

Another construction loan requirement is a set of construction plans. The bank will; want construction estimates from the builder, as well as information regarding the time line of construction, and estimated completion dates. They will also break down how much materials are estimated to cost, as well as labor when considering the loan application.

A bank may also seek information about the contractor as a construction loan requirement. Banks will not want to lend towards companies that have poor track records. The bank will often times seek credit information about the builder, as well as a signature from the contractor on the write up.

A bank may suggest a construction to permanent option as a construction loan requirement. Many times you will only pay interest on the loan during the construction process, then have an agreement on payments for the next ten to thirty years.

While these constructing loan requirements may seem problematic many of them exist to protect you as well as the banks interests.

So let’s recap…

Construction Loan Requirements Overview:

1. One big requirement is documentation of income. For people who receive a standard paycheck most banks will require at least six weeks worth of pay stubs to evaluate your current income.
2. Proof of ownership for the lot on which the home will be built is often times a construction loan requirement.
3. Another construction loan requirement is a set of construction plans.
4. Most banks will want to see construction estimates from the builder, as well as information regarding the time line of construction, and estimated completion dates.
5. A bank may require or check into the credentials of the home builder as a construction loan requirement.
6. Learn more about construction loan requirements and building a new home by downloading the free new home Steps Guide above on the right hand side and become savvy on the overall home building process.

Building a new home can be an exciting experience. A little knowledge goes a long way. Good luck with your home building endeavors.


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