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Construction Loan Process

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Step by Step Construction Loan Process

Here is the cast of characters typically involved in the construction loan process.

The Loan Officer typically has a relationship with the builder based on the builder's trust of the loan officer and lender to get the loan approved and properly administered.

The Loan Processor will be your secondary point of contact for all items related to documenting your loan application. The processor will request any and all required documents and package the loan file for submission to the underwriter. Typically, the processor and the loan officer work together on the file to insure that the loan closes properly and timely.

The appraiser

uses your home plans and specifications provided by the builder to determine the final "as-built" value of your new home. The value of the land will be based on the lower of the actual cost or the appraised amount which considers recent sales of similar parcels of land. The appraised cost to build will be based on the reasonable estimate that the builder has provided as compared to the cost of construction in the area. The appraiser uses cost guides that reflect recent costs of building materials. After using the cost approach to the appraisal, the appraiser will then compare the home to similar sales in the area before arriving at a final appraisal.


When the loan documentation is complete, the loan processor will submit the loan to the mortgage loan underwriter is the person who makes the final decision on your loan approval once all of the documentation is complete. Many lenders now use a computer based underwriting system to issue a pre-approval, but there is always a human to review and verify the documentation as the last step of the process.

The underwriter

The underwriter's main job is to review and verify the submitted documentation and compare it to the loan program's guidelines. If the documentation is questionable or does not exactly fit the guidelines, the loan will be sent back to the processor to obtain additional documentation.


Once the loan receives final underwriting approval, your loan will move to the lender's closing department. There, the loan's documents will be prepared and sent to your closing agent for you to sign and "close."

The Closing Agent.

The closing agent is the person who will assist you with the signing of all the final loan documents. This is typically an attorney or a title company. Generally, you can freely choose between either of these to do the closing for you. A few states, however, require you to use an attorney for the closing.

The lender typically will send a set of loan documents to be signed to the closing agent along with a check for any funds to be disbursed at closing. At the construction loan closing you will sign the normal mortgage loan documents associated with a mortgage loan plus additional documents that are unique to construction loans. These will include the construction loan agreement, loan disbursement instructions and other lender dictated documents.

The Insurance Agent.

Construction lenders require what is known as Builders Risk Insurance which will insure your house while under construction. Depending whether or not you are in a flood zone, flood insurance may be required.

The Builder

The builder will be an integral part of your loan process. Your lender will almost always require that the builder meets a particular set of criteria. Your builder will usually refer you to at least three lenders where the bulder is approved. You can select the lender that is best suited to your needs.

Sub-Contractors.

If you are acting as an owner builder, your sub-contractors and suppliers are a very important part of completing your building budget in a timely manner. Sub contractors hired by your builder can be the source of construction loan liens if they are not paid by the builder.

The County or City Building Department. Depending on the locale of your building lot, the local approving agency may be at the county or city level. All construction must be approved by the local governing agency and must meet the applicable building code requirements. Your plans will be reviewed for conformance with code and land use zoning.

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