Residential construction loan requirements may vary from one lending institution to another. You will be given a list of what is needed by your lending institution. The following items are commonly found on that list.
• W2s for past two years
• Tax returns for past two years
• Recent pay stubs
• Current profit and loss statement for self employed borrowers
• Your house plans, signed by the contractor or home builder
• A materials list and a description of contracted labor
• The contractor’s line item cost breakdown
• Construction loan budget worksheet
• A signed construction contract
• The contractor’s application
• The contractor’s license information
• The contractor’s credit report
• A deed to the land may be required
• Building permit – Before any disbursement of funds
• Preliminary survey – Before any disbursement of funds
• Construction loan agreement – At closing
• Schedule of payments – At closing when the escrow account is created
• Receipt for Real estate taxes and homeowner’s insurance – must be presented at closing
• Loan term must be specified at either six months or one year – Some lenders only allow six months
• Final Survey, which shows the location of the home and other lot improvements
• Homeowner’s insurance policy
• Final appraisal by either an independent appraiser or the bank’s appraiser
Points or Discount Points – interest prepaid by the borrower. One point is one percent of the amount borrowed. Reduce your interest rate by paying points. It’s a way of lowering the monthly payment with an upfront payment. Each point should reduce the interest by at least 0.125%
Origination Fee – Sometimes called a broker’s fee, this is a fee charged by the lending institution and can range from half a percent to 2 percent.
It is important to remember that you will need a mortgage loan in addition to a construction loan. These two loans can be obtained together in the same closing, or separately. Most people find it more economical and convenient to close both loans at the same time. It is also important to know that while FHA loans require only 6 to 9 percent down payment, most other loans require a 20 to 30 percent down payment. There are a few non FHA loans which require only a 10 percent down payment. Only a Veterans Administration loan requires absolutely no down payment. This is a government benefit for veterans only.
For more information on home loans please download our 98 page free guide, and read related articles on this site. Residential construction loan requirements may sound complex but the loan officer, the Realtor who sold the land and the building contractor are always willing to assist the borrower in filling out forms and understanding the procedure.