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Construction Loans: How do they work and what's needed to start the process?

Construction Loans: How do they work and what's needed to start the process?

Nicole HjeldenNicole Hjelden
Real Estate Officer | NMLS# 710489


A Construction loan is a type of loan that is used to pay for the cost of building a new home or a major renovation. It is set up as a draw-down where the lender releases funds throughout the stages of the construction. The interest is calculated based only on the funds drawn down and that is how the monthly payment is collected over the timeframe of the construction. After the construction project is complete the loan is then refinanced to a fixed rate loan paying principal and interest payments on the entire balance of the loan.

How do I start the process of a Construction project?

  • Look at your finances, most lenders require 20% down of appraised value plus a 10% reserve for any overages on the construction.
  • Search for land or a lot where you would like to build your home.  
  • Set up a meeting with a few licensed builders to discuss what ideas you have for your home so that you can pick the right builder for you.
  • Set up an appointment with Border Bank Lender to discuss financing budget.

What is needed to start the construction loan approval?

  • Contract for the purchase of the land or lot
  • Construction Agreement with your builder, which includes the construction plans, with complete details of timeline to breakdown of building phases and materials used.
  • Income verification (30 days of pay stubs and W-2’s)
  • Asset verification (60 days of bank statements or investment statements to show the down payment funds)
  • Credit application (allows for review of credit history)

At Border Bank, we offer loans to help you purchase lots with a lot loan, to helping you build your future home with a Construction Loan, to Refinancing that Construction Loan to a Permanent fixed Mortgage Loan.

And remember, our Mortgage team of friendly and experienced officers is here to help, and only one click away.

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