Construction Loan Preparation Checklist

Start with a one-page project summary: what you are building, where it is located, who will own it, how it will be used and how the construction debt will be repaid. Include the proposed start date, expected completion date, land ownership status and current stage of plans and permits. A clear summary helps distinguish an owner-occupied home build from an investment property or commercial development.

Construction financing is not one uniform product. A construction-to-permanent loan may transition into long-term financing, subject to its terms. A stand-alone construction loan requires a separate payoff or refinance. Investor and commercial projects may involve different underwriting, guarantees and repayment requirements than consumer home construction.

Identify the lane before gathering every possible document. An owner building a primary residence and a developer constructing homes for sale should not assume they face the same documentation or consumer protections. For broader context, explore the construction and development financing educational resources at /construction-development-financing.

Lenders generally evaluate the borrower as well as the project. Depending on the financing type, requested records may include tax returns, income documentation, bank statements, a personal financial statement, business financials, debt schedules and information about other properties. Ask for the lender's checklist and required reporting periods rather than assuming one package fits every program.

For an entity borrower, organize formation documents, operating agreements, ownership percentages, authorized signers and relevant guarantor information. Explain how the borrowing entity relates to the landowner, developer and operating business. Ownership inconsistencies can create title, underwriting and closing questions that deserve early attention.

Review statements for large transfers, recent borrowing, overdrafts or unexplained deposits. Prepare accurate explanations and supporting records without moving money merely to make an account look stronger. Use secure document-sharing methods and confirm the recipient before sending sensitive financial information. Capital readiness education at /capital-readiness can help frame this organization process.

A buildable-looking parcel is not necessarily ready for financing or construction. Gather the deed or purchase contract, available title information, survey, parcel details and any existing debt secured by the property. Identify easements, access restrictions, deed restrictions and other matters that could affect the intended use. A qualified title professional or attorney can explain issues within their scope.

Confirm zoning, setbacks, utility availability, drainage requirements and the status of permits with the relevant authorities. Depending on the site and project, a lender or project professional may require soil testing, geotechnical work, environmental review or flood-related documentation. These requirements should be investigated rather than presumed.

For a Dallas-area project, verify whether the property falls under Dallas or another municipality's jurisdiction; nearby locations can have different processes. Record what each approval requires, who owns the task and the expected timing. Unresolved site conditions can affect both the construction budget and the date loan proceeds become available.

Construction loan preparation requires more than a contractor's headline price. A sources-and-uses budget shows where the money comes from and every category it must cover. Uses may include land acquisition or payoff, site work, labor, materials, design, engineering, permits, utility connections, insurance, taxes, lender fees, interest and contingency. Separate amounts already paid from amounts still due.

Consider a hypothetical project with $150,000 in land acquisition costs, $420,000 in hard construction costs, $45,000 in soft costs, $30,000 for financing and carrying costs, and a $35,000 contingency. Total uses equal $680,000. If a proposed loan contributes $500,000, the remaining $180,000 must come from acceptable, documented sources. These figures illustrate budgeting, not available loan terms.

Reconcile each budget line to a bid, agreement or clearly labeled estimate. Explain whether allowances cover selections such as appliances and finishes, and avoid counting the same cost twice. Ask how the lender handles contingency funds, budget reallocations, cost overruns and unused proceeds. A balanced budget is necessary, but it does not establish approval.

Equity and liquidity answer different questions. Equity concerns the borrower's investment in the project; liquidity concerns accessible funds for required contributions and ongoing obligations. A lender may recognize eligible land equity, but its treatment can depend on acquisition timing, documented cost, appraised value, existing liens and program rules. Do not assume a parcel's estimated market value substitutes dollar-for-dollar for cash.

Ask when your contribution must be funded and whether borrower funds are used before loan draws or alongside them. Also clarify required reserves and whether interest will be paid monthly from your cash or through an approved interest reserve. An interest reserve is a budgeted funding source, not free financing.

Keep household or business operating needs separate from project cash. If you are considering a HELOC or another borrowed source for your contribution, disclose it and ask whether it is permitted. Additional debt can change underwriting and place other collateral at risk. The educational resource at /heloc-strategy discusses considerations around home equity borrowing.

Lender review may extend to the builder's experience, financial capacity, insurance, references and licensing or registration where applicable. Owner-builder arrangements may face additional restrictions. Ask which builder documents are required and whether builder acceptance must occur before other underwriting steps can proceed.

Your plans, specifications, contract and budget should describe the same project. If the plans show a garage that the contractor's bid excludes, the package is not reconciled. Document the scope of work, exclusions, allowances, payment milestones, expected schedule and change-order process. Fixed-price and cost-plus contracts allocate cost risks differently; neither removes every possibility of an overrun.

Have appropriate professionals review contractual and insurance questions. Depending on the arrangement, builder's risk, general liability, workers' compensation or other coverage may be relevant. Confirm who obtains each policy, who must be named and when coverage begins. Also clarify how lien waivers, subcontractor payments and disputed work will be handled under applicable law.

A requested loan amount is not the same as a supportable loan amount. Depending on the program, lenders may consider loan-to-cost, loan-to-value, borrower repayment capacity, liquidity and other limits. Loan-to-cost compares the loan with eligible project costs. Loan-to-value compares it with the relevant appraised value, which may be an as-completed value based on proposed plans and specifications.

For a hypothetical investment project, assume eligible costs are $680,000 and the as-completed appraisal is $750,000. If a hypothetical lender applies an 80% loan-to-cost cap and a 70% loan-to-value cap, those limits produce $544,000 and $525,000 respectively. The lower figure, $525,000, would constrain sizing before other underwriting limits. These percentages are examples, not standard or offered terms.

An appraisal below expectations can create a funding gap even when the contractor's budget has not changed. Prepare alternatives such as additional eligible equity, a documented scope revision or postponement. Never assume future appreciation will solve an initial funding shortfall.

Construction funds are commonly released through draws as work progresses, rather than delivered entirely at closing. Ask what supports each request: invoices, inspections, progress reports, lien waivers or title updates may be required. Confirm draw fees, turnaround expectations, retainage provisions and whether certain materials or deposits are eligible before installation.

Imagine a hypothetical builder requiring a $25,000 materials deposit before delivery while the lender releases funds only after specified documentation and verification. Unless an approved process addresses that timing mismatch, you may need temporary cash to bridge it. Do not assume paying an expense guarantees reimbursement; confirm eligibility and documentation first.

Build a month-by-month cash schedule alongside the construction schedule. Include interest, insurance, property taxes and other obligations during delays. Ask how interest is calculated, whether the rate can change, what happens if an interest reserve runs out and what loan extensions require. Inspection for a draw generally does not replace independent oversight of construction quality.

Test the exit strategy before treating the project as financeable. For a sale, estimate net proceeds after selling expenses and carrying costs rather than relying on the listing price. For a refinance, examine possible permanent-loan qualification, valuation, rental income and debt-service requirements. For construction-to-permanent financing, identify conversion conditions and any circumstances requiring updated underwriting.

Run clearly labeled downside scenarios: a three-month delay, higher costs, a lower sale price or a higher permanent interest rate. These are planning tests, not forecasts. Identify which scenario creates a cash shortfall and what documented resources or decisions could address it. Include the loan maturity date and any extension uncertainty.

Assemble an indexed package with current documents, a sources-and-uses budget, a project timeline and an open-issues log. Secure the Bag with Ms. B The Money Lady is a Dallas, Texas capital strategist and educator, not a lender. Educational support through /capital-consulting can help you understand your numbers, identify a capital lane and organize a personalized capital roadmap; it does not guarantee financing. This article is educational only, not individualized legal, tax or investment advice.