It’s typically harder to get a construction loan than it is to secure a mortgage. Some people even hire construction loan brokers to help facilitate the process. Because your house isn’t built yet, there’s no collateral. And because there’s no collateral, lenders will want to see strong evidence that the home will be completed.
If it’s a renovation, the lender may want to see that the project will add to the value of the home. Check out SoFi’s Home Project Value Estimator to get an idea of how much value you could get in return for each renovation project.
In order to get approved, you’ll have to show an overview of your financial profile, complete with plenty of documentation. They’ll typically want to see a debt-to-income ratio of 45% or lower and a high credit score.
For new construction projects they’ll also want you to be able to make a down payment – sometimes up to 35%.
In addition to your own profile, you will need a detailed plan, budget, and schedule for the construction. Since the project will depend on the builder’s ability to complete the construction to specifications, your builder’s reputation may be crucial to getting a construction loan approved. Lenders typically need to see a builder’s work history, proof of insurance, blueprints and specifications for the project, a materials list, and your signed construction contract.