Construction lending is the most documentation heavy corner of hard money, and the reason is simple. On a purchase, the lender is looking at something that exists. On a build, the lender is underwriting a plan, a team and a schedule. Everything on this checklist exists to make that plan credible. Work through it before you apply and you will move at a completely different speed.
The published terms you are working toward
Our ground-up construction program publishes LTC up to 80% including the lot, the build and the interest reserve, terms of 12 to 18 months, and special approval for loans above $4,000,000. The requirements are a minimum FICO of 600, property types of SFR, condo and townhome and two to four units, documentation consisting of an application, a schedule of real estate owned and proof of funds, and two prior ground-up projects.
Read the leverage carefully, because construction is sized against cost rather than value. LTC up to 80% means you are funding the remainder of land plus hard costs plus soft costs, in cash, alongside the loan.
The team
Lenders underwrite construction teams before they underwrite construction sites.
The general contractor. Licensed, insured, and with a record you can point to. Expect the lender to look at the license status and to ask about completed projects of similar type and scale. A contractor bid from a licensed GC with a real portfolio does more for a marginal file than almost anything else you can supply.
The architect and engineer. Named, engaged and with plans at a stage the building department will accept.
You. Our published requirement is two prior ground-up projects. Have them written down: address, scope, budget, timeline, outcome. A two page development résumé answers questions before they are asked.
If you are missing a piece of the team, that gap is the first thing to fix. It is much cheaper to solve before an application than during one.
The site
Entitlements and zoning. Confirmation that what you intend to build is permitted on that parcel, at that density, for that use. An unentitled site is a different loan with a different risk profile.
Permits. Where they are in the process, what remains, and how long the local department is taking. Permitting is the single most common source of schedule slippage on a build.
Utilities and access. Confirmed service connections and legal access. A parcel with a driveway that crosses a neighbor’s land is a title question, not a construction one. See our post on title and escrow for how those surface.
Soils, survey and environmental. Whatever the site and the jurisdiction require. Surprises here are expensive and they arrive after you have committed.
The preliminary title report. Ordered early, read carefully. Easements can change what you are allowed to build. The land property type page covers what a lender looks at on raw parcels.
The plans and the budget
Plans at a stage a contractor can price and a building department can review. Then a budget built from those plans rather than from a spreadsheet.
A construction budget a lender will fund has three qualities. It is line by line, so every draw can be measured against it. It separates hard costs from soft costs, because soft costs land early and hard costs land through the schedule. And it carries a contingency, because a budget without one tells the lender you have not built before.
The budget is also the document every draw is measured against for the life of the loan, so the time spent on it is repaid several times over. Our post on building a construction budget a lender funds goes through it line by line.
The schedule and the draws
A realistic construction schedule tied to the budget, with milestones that can be inspected.
The holdback releases against completed work, so the schedule and the draw plan have to agree. Ask the lender how many draws, what documentation is required, who inspects and how long funding takes. On larger builds expect formal fund control administering disbursement directly.
Ask also whether interest accrues on the full loan or on funds drawn, and whether an interest reserve is available. On a twenty four month build, that answer is a material part of the total cost. The mechanics are in how rehab draws and holdbacks work.
The exit
Two questions, and the lender will ask both.
If you are selling, what do finished properties of this type sell for in this immediate area, from closed comparable sales, and how long do they take.
If you are holding, what is the takeout. For a rental, that means the rent the finished property will achieve and whether it clears a long-term lender’s coverage requirement. Our rental DSCR program publishes terms up to 30 years and LTV up to 80%, and the rental portfolio and multifamily term products publish LTV up to 75%. Check your projected takeout against those caps now, not at completion.
Build-to-rent projects should also check seasoning requirements, because a seasoning clock that starts after your construction loan matures is a problem with no late solution. The full treatment is in exit strategy: how a hard money loan ends.
Your documents
Application, SREO and proof of funds are the published list. In practice a strong construction package also carries entity documents in good standing, personal and project financials, the contractor’s bid and license evidence, plans, the permit status, the preliminary title report and the insurance binder including builder’s risk.
Organize it as a package rather than as attachments. Property and site first, then the plan, then the team, then the money, then the exit. A lender who can follow your file in one pass underwrites it in one pass.
When you are ready
The 1031 exchange scenario covers builds inside an exchange timeline, and the multi-family property type page covers the larger end. When the package is together, send it through the borrow page or call (619) 617-2797 and we will tell you which parts still need work before it goes to underwriting.
