<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=1105074796330487&amp;ev=PageView&amp;noscript=1">

Construction loan: Revealing your private financial details to a complete stranger

loan approval meeting

To build a custom home, you start with a construction loan. First you need to pick a bank that has experience in construction loans. You may have a favorite bank, but if they don't have a lot of experience with construction loans, we highly recommend finding one that does. It's not as straightforward as a conventional mortgage loan, and you want someone who knows the ins and outs.

The person you'll talk to at the bank for a construction loan is called a loan officer. That's banker speak for loan salesperson. Yep, on the surface it's all unicorns and rainbows. The salesperson is probably going to tell you "everything looks good" before the bank has had time to really look into your situation, so be aware of that up front.

Here's how the basic process works.


Any loan means lots of paperwork. You'll gather up your bank statements, W-2s, tax returns, and other documents and take them to the banker. He will forward them to the underwriter—that mythical creature who has the magical powers to discern whether you are a good credit risk.

More paperwork

In any construction loan process, the bank is probably going to call you back three or four times to ask for more documents or more explanation of the documents you already submitted. Why? Usually because the underwriter told him to.

Loan approval with conditions

When your loan gets approved, it'll probably be subject to some conditions. Some common conditions include requiring that the cost to build the house doesn't exceed some specified amount, that the appraised value of the house equals or exceeds some specified amount, and that your income doesn't change and you don't change jobs during the building process. There will probably be some other little details included that the bank thinks are important.

Next steps

Now you know how much you can borrow, and it's up to you to decide whether or not you can afford that amount. Just because the bank will loan you the money doesn't mean it's a good idea.

The process of getting a construction loan will test your patience. If the banker was recommended by your builder, you'll wonder if your builder intended for you to endure such treatment. It really isn't the banker trying to be difficult, it's just a difficult process.

Banking is heavily, heavily regulated. There are more rules to follow than any one person can keep track of, and the penalties for violating those rules can be steep. So, the bank will do everything they can to ensure they meet all of the requirements while making the process as smooth as possible for you.

Building the Perfect Home on Your Land

Questions to Ask the Banker Providing Your Construction Loan

Finding the right banker to do the construction loan for a custom home on your land is one of...
Continue reading

2 Key Questions to Ask Bankers About Construction Loans

Every business needs a sales force, as they are the ones who find the clients. Without clients,...
Continue reading

Should You Commit to a Builder Before You Know All the Details?

When you're building on your land, you want to find the right builder for you. And in most...
Continue reading
Tim Turner

Written by Tim Turner

A home builder for 18 years, Tim is the "son" in Turner & Son Homes. He is the CEO of the company and partners with his dad, Ben, who has been building since 1964.

Get the Guide

Recent News

Search our Blog

Get the Guide