Three things get reviewed on every construction loan: you, your builder, and the project.
Construction guidelines are often stricter than a standard purchase because the lender is financing a home that does not exist yet. Here is what Ken Clark Jr. and the #ChampionsofLoans team review, and what to gather before you apply.
Short answer: the same fundamentals as a purchase loan (credit, income, debt-to-income, assets), often with tighter standards because of the added risk of building.
| Requirement | What lenders look at |
|---|---|
| Credit | Scores, payment history, and recent credit. Minimums vary by program and are often higher for construction than for a standard purchase. |
| Income | Two years of history is common. Pay stubs and W-2s, or tax returns for self-employed borrowers. |
| Debt-to-income | Your future housing payment plus other debts, compared with income. Limits vary by program. |
| Down payment | Cash, land equity, or both. See land equity. |
| Reserves | Some programs require savings left over after closing. Construction can also mean carrying rent and interest during the build. |
| Occupancy | Primary residence, second home, or investment. Government programs require a primary residence. |
Short answer: it depends on the program. VA and USDA may allow no down payment for eligible borrowers, FHA's minimum is 3.5 percent for eligible borrowers, and conventional and jumbo construction usually require more.
Land you already own may count toward the requirement. Business-purpose investor construction loans are sized differently, based on experience, the project, and program guidelines. Compare programs on the construction loan overview.
Short answer: there is no single number. Minimum scores vary by program and are often higher for construction than for a standard purchase, because the lender is financing a home that has not been built.
The practical answer is to have your actual credit reviewed against current program guidelines before you commit to a lot or builder. If your score is close to a threshold, a few months of targeted cleanup can widen your options.
Short answer: your builder must complete builder registration, which is a documentation review for program eligibility, not an endorsement of the builder.
Typical items include a contractor license where the state requires one, general liability insurance, workers' compensation where required, identification, and recent project experience. VA construction requires a builder with a VA builder ID. Full details: builder registration.
How money moves during the build: construction loan draw process.
Short answer: the lot must be buildable for your home, and the finished home must be an eligible property type in a location that supports its value.
Lenders look at zoning, legal access, utilities or approved well and septic, flood and wildfire exposure, and whether comparable homes support the as-completed value. USDA also requires an eligible rural location. Manufactured and modular homes have their own foundation and property requirements. Buying the lot too? See buy land and build.
Short answer: the appraisal estimates the as-completed value from your plans. That value, together with total project cost, limits how much can be financed.
Under Fannie Mae's conventional single-closing guidelines, for example, the appraisal must be no more than four months old at closing, and a completion report is required when construction is finished. A budget that far exceeds what similar homes sell for is one of the most common reasons a project has to be reworked.
Short answer: owner-builder financing is limited. Most construction-to-permanent programs for a primary residence require a licensed builder who completes builder registration.
Some PRMG programs may allow an experienced owner-builder, most often on business-purpose investor projects, when you can document construction experience, carry the required insurance, and provide the same budget, plans, and schedule a builder would. Ask before you draw plans.
| Borrower | Builder | Project and land |
|---|---|---|
| Government ID | Contractor license (where required) | Final plans and specifications |
| Pay stubs and W-2s, or tax returns if self-employed | General liability insurance certificate | Signed construction contract |
| Two months of bank and asset statements | Workers' compensation (where required) | Line-item budget with contingency |
| Explanation of any credit items | Business and contact information | Draw or phase schedule |
| Gift letter, if using gift funds | Recent project history and references | Lot contract or deed, survey, payoff statement |
| VA Certificate of Eligibility (VA loans) | VA builder ID (VA loans) | Permits or permit timeline, utility and septic info |
Additional items may be required by the program, the property, or underwriting.
Answered by Ken Clark Jr., Certified Mortgage Advisor. Program availability and requirements vary and are subject to change.
Documented income, acceptable credit, a down payment (cash or land equity), any required reserves, a builder who completes builder registration, final plans and specifications, a signed contract, a line-item budget with a contingency, and an appraisal that supports the as-completed value.
Often somewhat, because the lender is financing a home that does not exist yet. Credit, reserve, and documentation standards can be stricter, and the builder and project are reviewed too.
It varies by program and is often higher than for a standard purchase. Have your credit reviewed against current guidelines before committing to a lot or builder.
VA and USDA may allow no down payment for eligible borrowers, FHA's minimum is 3.5 percent for eligible borrowers, and conventional and jumbo usually require more. Land equity may count.
Some programs require reserves after closing. Even when not required, it is wise to plan for carrying costs during construction, such as rent and interest on drawn funds.
Income and asset documents, ID, plans and specifications, a signed contract, a line-item budget, a draw schedule, lot documents, and your builder's registration documents.
You can start the conversation early, but final plans, specifications, and a budget are needed for the appraisal and approval.
Owner-builder options are limited and program specific. Most primary-residence construction programs require a licensed builder who completes builder registration.
Requirements vary. Some programs require permits before closing or before the first draw. Know your local permit timeline and plan for it.
Many programs allow gift funds for a primary residence with proper documentation, subject to program rules.
Yes, with appropriate income documentation, usually tax returns. Some investor programs qualify differently.
Guidelines change. Verify current program requirements with Ken Clark Jr. before relying on them for a transaction.
Disclaimer: This content is for educational purposes only and is not a commitment to lend, a guarantee of approval, or a rate quote. Loan programs, down payment requirements, terms, and eligibility depend on borrower, property, project, builder, and program qualifications, are subject to underwriting, and vary by state. Not all applicants or projects will qualify. Builder registration is a documentation review for program eligibility and is not an endorsement of any builder. Equal Housing Opportunity. Paramount Residential Mortgage Group, Inc. (PRMG), NMLS #75243. Ken Clark Jr., NMLS #225375. PRMG is licensed in 49 states, excluding New York.
Certified Mortgage Advisor and Branch Manager at PRMG Mortgage (NMLS #75243). 28 years in mortgage lending. Specializes in FHA, VA, conventional, DPA, jumbo, Non-QM, renovation, and construction financing for buyers and investors in Sacramento, New Jersey, and nationwide. PRMG is licensed in 49 states, excluding New York. Three-time Gold Award winner for Highly Reviewed Mortgage Team in Sacramento (2023, 2024, 2025). NMLS #225375.
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