Documents required to fund Construction Loans
So, you’ve purchased your land and now you’re ready to build your dream home. Construction loans can be complicated and confusing. Following is a list of documents most construction lenders are going to require. By being prepared up-front, you’ll sail through the construction loan process and save yourself a lot of time and frustration. Plus, having this ready prior to the application process will make your lender very happy!
Please note that everything in this list may not apply to you or your particular situation.
- Copy of Driver’s License
- Copy of Social Security Card
Proof of Income:
- Copy of most recent, full month pay stub(s)
- Copy of last two year’s W2 forms
- Copy of last two year’s tax returns
- Copy of business YTD Profit & Loss statement (if self-employed)
- Copy of employment/relocation contract (if applicable)
- Copy of Pension, Disability, or Social Security income award letter & recent pay statement (if applicable)
- Copy of Business License for the past 2 years
- CPA letter regarding a minimum of 2 years of self-employment
- 12 months of Personal and/or Business bank statements
Proof of Assets:
- Copy of most recent 2 month’s bank statements (all pages, even if blank if they are numbered)
- Copy of most recent quarterly statement for 401(k), IRA, Mutual Fund, Brokerage Acct.
- Copy of canceled checks & invoices for pre-paid land and/or construction-related items.
- Copy of canceled check for land and/or builder deposit
- Copy of closing statement for recently purchased (less than 12 months) land
- Copy of closing statement for recently sold (less than 12 months) real estate
Construction Process:
- Copy of Purchase contract for land
- Copy of Construction contract/agreement
- Copy of Listing Agreement or Intent Letter for current residence
- Name, address, and phone number of current landlord
- Name & phone number of insurance agent (Course of Construction, Liability, & Homeowners)
- Construction Plans & Specs for new property
- Builder’s material cost breakdown & Description of Materials
- Check for Appraisal and/or Credit Report
- “Resume” letter regarding home construction-related background, if you’re participating in the construction one way or another.
In addition to gathering all your financial documents, you’ll need to include your anticipated closing costs in your budget. You’ll also want to establish what type of loan will work best for you. A construction loan is a short-term loan. The construction period can be as little as 6 months or as many as 18 months, depending on your construction lender and the loan program. Many lenders now offer a construction-to-permanent loan where the construction loan automatically rolls over into the permanent mortgage versus a construction-only loan followed by a permanent loan. This will save you the time and money (and headache) of doing two separate loans.
You’ll want to be sure to discuss the loan terms with your lender. The building process will involve a set number of draws. You’ll want o discuss the draw schedule that your lender offers with your builder so that they know when they’ll be paid throughout the construction process.
Most construction lenders are going to require a good credit score and income ratios. Be sure to check out my tips on how to maximize your credit score.
Building a new home can be both exciting and stressful. Whenever I met with a couple to discuss their new construction options, my first question was usually, “How strong is your marriage?”. I said it jokingly but wanted them to prepare themselves for a few “bumps” through the construction process.
If you are considering building a home for the first time and have some concerns or questions, feel free to reach out to me. I’m always happy to help.
