How Long Does It Take To Get A Construction Loan Approval?

Embarking on the journey to build your dream home is exciting, but navigating the construction loan process can feel daunting. If you dream of constructing a home but are hesitant about the loan process, you’re not alone. Many share your concerns about navigating what seems like a complicated path.

So, let’s demystify the construction loan process. Below, you’ll find a clear, step-by-step roadmap that will leave you feeling more informed, less stressed, and ready to take the next step with confidence.

If you’re planning to build your dream home from the ground up you’ll need a construction loan to finance the project. Construction loans allow you to borrow money in phases to pay for land acquisition materials, labor, and other costs associated with building a home.

But before you can break ground, you first need to get approved for the construction loan. So how long does that process take? Here’s what to expect when getting construction loan approval.

Overview of Construction Loans

Unlike a traditional mortgage, a construction loan is a short-term financing option meant to cover the building phase of your home. The loan amount will be disbursed in installments as each phase of construction is completed.

Once the home is finished, the construction loan can then be converted into a permanent mortgage. At that point, you’ll begin making regular principal and interest payments just like with any other home loan.

Construction loans come with variable interest rates, which means the rate fluctuates over the life of the loan. They also tend to have higher rates compared to conventional mortgages since they are considered riskier for lenders.

In order to qualify, you’ll need a minimum credit score around 620, a manageable debt-to-income ratio, and a down payment of at least 20%. The lender will also want to review and approve your builder’s qualifications and licenses, detailed construction plans, and a line-item budget.

Timeline for Construction Loan Approval

The approval process for a construction loan is similar to getting approved for a conventional mortgage in that you’ll need to submit an application and required documentation.

However, because construction loans have additional variables and requirements, it typically takes 30 to 45 days to get full approval after you submit your completed application.

Here’s a step-by-step look at what you can expect during the construction loan approval timeline:

1. Research lenders and prepare documentation (1-2 weeks)

Shop around and compare different lenders to find the best rates and terms.
Gather all required paperwork including tax returns, bank statements, debt information, employment details, and construction plans.

2. Submit loan application (Day 1)

Formally apply for the construction loan and pay any application fees.
Provide lender with prepared documentation from step 1.

3. Underwriting review (1-3 weeks)

Lender will verify your income, assets, credit, and other financial details.
Lender will assess and approve the construction plans, budget, builder qualifications, etc.

4. Appraisal completed (1-2 weeks)

An appraiser will determine the value of the land/property where you plan to build.

5. Final loan approval (1 week)

The lender will issue a loan commitment letter indicating final approval.
You’ll receive loan closing documents to review and sign.

6. Loan closing (Day 30-45)

The closing appointment finalizes the loan. You’ll sign the closing docs and pay closing costs.
After closing, loan funds will be made available to start construction!

As you can see, the entire process takes about a month and a half on average after submitting a complete construction loan application. However, actual timelines can vary based on your specific circumstances.

Factors That Impact the Construction Loan Timeline

While 30-45 days is typical, there are several things that could make the approval process take longer:

Credit score below 680 – Lower scores require more underwriting scrutiny.
High debt-to-income ratio – Additional validation of your budget and finances may be needed.
Appraisal delays – Appraiser availability could push this step back.
Builder verification – More time may be required to validate builder qualifications.
Application errors – Mistakes and missing info will delay underwriting.
Lender workload – More applications could mean slower processing times.
Construction plan complexity – More intricate plans require deeper review.
Land purchase – The process is lengthened if you don’t already own the property.

You may be able to speed things up by getting pre-approved with a lender before finding land, choosing an experienced builder, minimizing debts, and submitting a complete error-free application.

Tips for a Smooth Construction Loan Process

Follow these tips to help streamline the construction loan approval process:

Have a minimum 680 credit score – This shows lenders you’re a low risk and speeds up approval.
Lower your debt-to-income ratio – Keep monthly debts under 40% of income if possible.
Save for a larger down payment – Putting down 20% or more gives you better loan terms.
Choose a reputable general contractor – Their strong credentials will ease lender concerns.
Have detailed construction plans and estimates – This gives the lender confidence in the project.
Provide extensive documentation – Thorough paperwork prevents delays for more information.
Get pre-approved – This shows sellers you’re serious if purchasing land.
Communicate with your lender – Ask questions and let them know your timeline goals.

The construction loan process involves many moving parts. Being organized and prepared can help your approval go as quickly and smoothly as possible. Reach out to lenders to learn more about what’s needed for construction loan approval. With some advanced planning, you’ll be breaking ground on your custom-built dream home before you know it!

Estimated Timelines for Construction Loans

The construction loan process typically takes between 30 to 60 days. However, timelines may vary based on several factors, including appraisal timelines and underwriting queues. Being aware of these will help you plan more effectively.

Factors That Can Extend the Construction Loan Process

While our goal is to facilitate a smooth and efficient process, several factors may potentially extend the timeline of your construction loan approval. Being mindful of these can help you plan more effectively and potentially streamline your journey.

Document Responsiveness: Quick and complete responses to document requests can significantly reduce delays.
Bank Statement Analysis: We verify that the funds you’re using are yours. Be ready to explain significant deposits in your bank statements.
Loan Processing Volumes: The number of loan applications being processed can impact turnaround times, especially during peak seasons.
Plans and Budget Development: Finalizing your construction plans and budget can take time, but it’s essential for an accurate and successful project.

The Construction Loan Process: Step-by-Step

The process for securing a construction loan differs from typical mortgages. Understanding these differences is crucial whether you’re a first-time borrower or have previous loan experience. Here’s what you need to know:

Application Phase: Your journey begins with your online application. Unlike standard loans, construction loans are based on budget and appraised value estimates, but don’t worry – you can adjust these aspects before securing your loan.
Document Submission: Next, you’ll provide the necessary documentation. This includes financial statements (debt, income, and assets), a signed construction contract with your builder, and a construction timetable outlining start and completion dates.
Underwriting Process: After we receive your documents, the underwriting process commences. This stage assesses your financial stability and the feasibility of the construction project.
Plan and Budget Submission: We require detailed floor plans and a comprehensive budget for an accurate appraisal. This budget should cover the entire scope of the project.
Conditional Loan Approval: In many cases, loan approval is granted before the appraisal, based on preliminary checks of credit and finances.
Appraisal: An appraisal is ordered to evaluate the project based on your plans and budget. This process typically takes 2-3 weeks.
Final Steps to Closing: As closing approaches, several tasks are completed: confirming the loan amount, locking in the loan, reviewing the cash needed at closing, and finalizing conditions. A final statement from the builder will also be required, outlining any pre-paid costs and deposits needed at closing.

Use A Construction Loan To Build A House?

FAQ

What is the timeline for construction loans?

Estimated Timelines for Construction Loans The construction loan process typically takes between 30 to 60 days. However, timelines may vary based on several factors, including appraisal timelines and underwriting queues. Being aware of these will help you plan more effectively.

Why are construction loans hard to get?

Construction loan requirements will vary by type and lender. Because there isn’t a house to use as collateral, lenders will often need to see more documentation and require higher qualifications from the borrower.

Is a construction loan easier to get than a home loan?

In general, it is harder to qualify for a construction loan than for a traditional mortgage. Most lenders require a credit score of at least 680 — which is higher than what you’d need for most conventional, VA and FHA loans.

How do construction loan interest payments work?

During construction, you pay interest only on the amount you’ve borrowed (not the total amount you’ve been approved to draw). If you have a construction-to-permanent loan, the loan will transition into a permanent mortgage once construction is done.

What are construction loans?

Here’s an explanation for Construction loans are short-term loans that you can use to build a new home. Some construction loans can be converted to mortgages after your home is finished. Construction loans typically have tougher criteria than conventional mortgages for existing homes.

How long is a construction loan?

Construction loan terms are typically 12 months but can be longer or shorter. During construction, you pay interest only on the amount you’ve borrowed (not the total amount you’ve been approved to draw). If you have a construction-to-permanent loan, the loan will transition into a permanent mortgage once construction is done.

What is the difference between a construction loan and a mortgage?

As mentioned, construction loans are short-term loans, usually no longer than a year in length. On the other hand, traditional mortgages are long-term loans, with terms typically ranging from 15 – 30 years. With a mortgage, the borrower receives the money in one lump sum.

How do construction loans work?

Funds are released in stages as the construction progresses, which can help manage costs. You can usually convert the construction loan to a traditional mortgage once the construction is complete. You only pay interest on the amount you’ve borrowed during the construction phase.

Should you get a construction loan?

Get building! While often more complex than a standard home loan, construction loans can be helpful if you’re building a home from scratch or looking to purchase a home and make major renovations. Note that there are several types of construction loans, each matching a specific scenario.

How do I get a construction loan?

Here are some steps you might take toward getting a construction loan: Find and hire a contractor. Find your desired lender and learn what you’ll need for the application. Consider getting prequalified, if possible. Devise your construction plans, budget and other necessary documents. Apply for your desired loan. Get building!