How to Get a Home Loan to Build a House

While there are many ways to have a home built, one popular way is to buy a new home as a presale (not yet built) in a subdivision. The builders work with the bank who funded the development and will provide construction funding for each home. You will need an approval letter and a building contract. Once you provide this, the construction bank will grant the builder the construction funding, which will be used to build your new home.

Things You'll Need

  • Credit report with good scores
  • 2 years of W2s
  • 30 days of pay stubs
  • 2 months banking info, including savings, investments, containing proof of down payment
  • Contract with builder
  • Possibly contract for land

Step 1

Contact the builder within the development that you are interested in. Discuss home plans that he is building and costs to produce the home you have picked out. He will give you particulars on what his construction bank's requirements are for granting him a building loan on your behalf. (This is usually an approval letter from your lender.) This will allow him to contract with you to build the home.

Step 2

Contact a mortgage broker and schedule an appointment to get prequalified for a mortgage. She will take a loan application and collect your financial information. Discuss the required down payment, costs to close the loan and any upfront costs you will need to pay. Discuss credit scores to be sure yours fit the mortgage requirements. The broker will run your information through an automated underwriting system, and then, based on the automated response, issue you an approval letter.

Step 3

Give the approval letter to your builder. He (or his agent) will draft a building contract that spells out the particulars and costs of building the home. Once it is all signed, give a copy of the contract to your broker who issued the approval. The builder will supply copies to his construction bank, and they will approve the construction loan to him for your home. He can now begin the building process.

Step 4

Keep your broker updated as the building reaches completion. When you are about 60 days from completion, update all the income documents. You may want to lock in the interest rate on your loan at this time. The broker will have ordered an appraisal on the incomplete home. This is because she needs to submit the loan package to the funding investor while the home is nearing completion. Once the underwriter (final approver of the loan) approves the loan package, they will condition the broker for a final inspection showing a photo of the finished home.

Step 5

Stay in touch with the broker as the final inspection is done. Your broker will have coordinated your closing with a title company or attorney (depending on the state you are in). Once the final inspection is forwarded to the lender, a "clear to close" message will be sent to the broker, who will schedule your loan closing. She should now be able to give you the exact amount of funds that you need to close.

Step 6

Visit your bank and have a cashier's check drawn for the amount of closing funds needed. Take this check and attend your closing as scheduled. You will need proof of your identification at closing. You should receive your house keys at this meeting, along with all the signed closing documents.

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