The Construction Loan Process

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Obtaining a construction loan can be a tedious and overwhelming process.  Below is a guide illustrating how to apply for and close a construction loan:

1.   Pre-qualify for the construction (and permanent mortgage) loan. Submit the required documentation to us. This will help determine how much of a construction loan you will qualify for and, depending on the down payment, how expensive of a house you can afford. The permanent mortgage lender will issue a "Take-Out" mortgage letter that will be included to the construction lender (visit

2.   Select a loan program. Determine which program fits you best.

3.   Choose a Realtor (if necessary). Pick a Realtor and find the lot you wish to purchase.

4.   Choose a Builder/Architect. Interview and request bid from builders and determine the design and features of the home.  Forward the cost breakdown to us. 

5.   Lender orders an appraisal. This will determine the value of your new home, based on the plans and specifications submitted by the builder.  Depending on the lender, the loan will be based on the lesser of the appraised value or cost. New loans will range anywhere from 65-90% of value or cost, depending on the loan amount.

6.   Lender orders title. Be sure to review the title commitment with us and your realtor / builder for any requirements or exceptions the title company may require prior to or at closing.

7.   Order an Improvement Location Certificate (ILC). A Surveyor will make sure your home does not encroach on your neighbor's property and meet all proposed setback requirements.

8.   Apply for insurance. Whether you apply for builder's risk or course of construction insurance, the process should be started before you close. The insurance does not need to be put into affect until the foundation is poured.

9.   Close on Construction loan. Set a closing date and sign the documents.

10.  Pay/Advance interest due from construction loan. Interest is calculated based upon the funds used (similar to a credit card). Depending on the lender and loan program, interest may either be advanced from the construction loan or paid directly by you.

11.  Submit draws based upon the cost breakdown. Send draw form, with invoices, to bank with lien waiver attached or stamped on the back of your check. A valid, signed lien waiver will protect your property from contractors filing claims for disputed or unpaid bills which may result in mechanic liens.

12.  Lender orders draw inspections. A third party inspector will examine the home to make sure the invoices match the work performed by the builder.  Once the work is certified by the inspector, requested funds are then advanced.

13.  Schedule inspections with the City/County inspectors. City/County inspectors will verify work has been completed in compliance with city building codes. 

14.  Begin the permanent mortgage process and consider locking (visit Approximately 60 days prior to completing the home, apply for the mortgage to begin the underwriting process. You should also consider locking the rate on the new loan to ensure your rate.

15.  When the home is complete, apply for Certificate of Occupancy (C/O) with the building department. The City/County will issue a C/O when the home has passed the final inspection and is ready for occupancy.  This is scheduled by the builder.

16.  Schedule a closing date for the permanent mortgage. Select a date and time.

17.  Close on the permanent loan. You're finished!

Have questions about mortgage loans? Call us at (303) 931-3239 or e-mail us at  We answer questions about different types of loans every day.

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