Construction & Renovation
Builder Requirements for Construction Loans
What lenders review before approving your builder: licensing, insurance, experience, references, financial capacity and the construction contract itself.
Updated 2026-08-21| Applies to: Borrowers selecting a builder, and builders working with construction financing.
The short answer
The lender underwrites the builder alongside the borrower. Expect a review of the contractor's license, general liability and workers compensation insurance, years of experience with comparable homes, references and completed project history, financial capacity to carry work between draws, and a construction contract with a defined cost, scope and completion date.
Builder approval package
- Contractor license as required by the state or municipality
- General liability insurance and workers compensation certificates
- Résumé of completed projects similar in size and price
- References from recent clients and suppliers
- Financial statements or bank references showing capacity
- W 9 and payment instructions for draw funding
What the contract must contain
| Contract element | Why the lender cares |
|---|---|
| Fixed or clearly defined price | The budget and draw schedule are built from it |
| Detailed scope and specifications | The appraisal depends on it |
| Line item budget | Draws are released against these lines |
| Completion timeline | Sets the construction term |
| Change order process | Prevents unapproved cost growth |
| Lien waiver commitment | Protects title at each draw |
Questions to ask a builder before signing
- Have you worked with construction to permanent financing before?
- How do you handle allowance overages?
- What is your typical change order turnaround?
- Who manages subcontractor lien waivers?
- What happens if material costs move during the build?
General education, not a commitment to lend. Construction, land and renovation program terms, loan to value limits, draw procedures and builder requirements vary by lender, property and current guidelines, and they change over time. Manny Oloyede | Mortgage Broker | NMLS 1824463 | Ultimate Mortgage Brokers LLC. Equal Housing Opportunity.
Common mistakes to avoid
- Signing with a builder before confirming the lender can approve them
- Accepting a cost plus contract with no cap on a program that requires a defined price
- Skipping reference calls on completed projects
Frequently Asked Questions
People also ask
Do I make payments during construction?
On most one time close programs you pay interest only on the funds drawn to date, then the full payment begins after conversion.
Read: One Time Close Construction LoansDo I close twice?
Not with a one time close construction to permanent loan. You close once, and the loan converts at completion. A two time close structure has a separate construction loan and a separate permanent refinance, with two sets of closing costs.
Read: Construction to Permanent Loans ExplainedWhich is cheaper overall?
Usually the one time close, because you pay closing costs and title work once instead of twice. The exact difference depends on loan size and the fees on each structure.
Read: One Time Close vs Two Time Close Construction LoansHow long does a draw take to fund?
Commonly a few business days from request to funding once the inspection is scheduled and lien waivers are in. Timelines are not guaranteed and depend on the inspector and title company.
Read: How Construction Loan Draws WorkHow much should my contingency be?
Many builders and lenders plan a contingency in the range of five to ten percent of hard costs. Larger custom projects and older lots with unknown site conditions justify the higher end.
Read: How to Finance a Custom Home BuildCan I use land equity as my down payment?
Often yes. Land owned free and clear commonly counts toward equity in the construction project, subject to program rules and the appraised lot value.
Read: Land Loans vs Construction LoansTerms used in this guide
- Builder
- The licensed contractor constructing the home. Construction lenders review builder experience, licensing and the construction contract.
- New Construction
- A home being built or recently completed, financed either with a construction loan or an end loan once the home is finished.
- Draw Schedule
- The stage by stage plan for releasing construction funds as work is completed and inspected, built from the project's line item budget.
Written by
Manny Oloyede, Mortgage Broker
NMLS #1824463 | Ultimate Mortgage Brokers LLC NMLS #2619461 | Licensed in OH | KY | NC | PA | SC | TN | TX
I have worked in mortgage lending since 2018 out of the Akron / Cuyahoga Falls Branch, helping buyers, homeowners and investors across Northeast Ohio and every state where I am licensed. These guides reflect the questions I answer most often, written the way I would explain them on a call.
Keep reading
How to Finance a Custom Home Build
A step by step path to financing a custom home: budget, lot, builder selection, plans and specs, appraisal, closing and the draw phase through completion.
Construction & RenovationHow Construction Loan Draws Work
How construction draws are requested, inspected and funded, how the draw schedule is built from the budget, and what causes a draw to be delayed.
Construction & RenovationConstruction Loan Timeline and What Delays It
What happens between application and certificate of occupancy on a construction loan, and the delays that most often push a build past its planned completion.
Construction & RenovationConstruction to Permanent Loans Explained
How a construction to permanent loan works: the build phase, interest only draw payments, inspections and the conversion to a standard mortgage at completion.
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