Construction loan package checklist

What the lender is deciding

Four questions, in this order. Will the project get built for the budget? Will it be worth more than the loan when it is done? How does the loan get repaid? And if something goes wrong, who has the money and the skill to finish?

Lenders hold $470B FDIC call reports and NCUA 5300, Jun 30, 2026 in construction and land loans. The 2006 interagency guidance gives these loans a supervisory screen of their own, at 100 percent of a bank’s total capital, so a bank’s room for them can move from year to year. See the concentration guide.

Part 1: budget, sources and uses

• A line-item budget: land, hard costs by trade, soft costs, financing costs, contingency
• Sources and uses on one page
• The land purchase contract or closing statement, and what has been spent to date with proof
• An interest reserve calculation showing how interest is paid during construction and lease-up
• A contingency line, stated as a share of hard costs
• A cash flow schedule by month: draws, equity, interest

Land you already own counts as equity at a value the lender accepts, which is often what you paid plus documented improvements, not today’s appraisal. Ask how the lender will count it.

Part 2: plans, permits and feasibility

• Plans and specifications, as complete as they are
• Zoning confirmation and the status of every approval and permit
• A survey and a geotechnical report, if done
• Environmental reports on the site
• A market study or your own evidence of demand: comparable rents or sales, absorption, competing projects
• A pro forma: stabilized income and expenses for a rental project, or a sales schedule for a for-sale project
• Pre-leasing or pre-sales: signed leases, letters of intent, or contracts

Part 3: the contractor and the contract

• The construction contract. Lenders prefer a fixed price or a GMP contract over cost-plus with no ceiling
• The general contractor’s license, references, financial statement and list of completed projects of this kind
• The schedule, with milestones
• Insurance certificates: builder’s risk, liability, workers’ compensation
• Payment and performance bonds, if the lender requires them
• The architect’s and engineer’s contracts
• The retainage terms

If the sponsor is also the builder, say so plainly. The lender will look harder at the budget and may want a third-party cost review.

Part 4: sponsor, equity and guaranties

• Financial statements, tax returns and a schedule of real estate owned for each guarantor
• Proof of the cash equity, in account statements
• A record of projects built: type, size, cost, outcome
• Contingent liabilities, including guaranties on other construction loans
• Entity documents and an ownership chart

Expect three guaranties to be discussed. A repayment guaranty covers the loan. A completion guaranty is a promise to finish the building and pay cost overruns. A carry guaranty covers interest and operating shortfalls until the project is stable. Which the lender asks for, and whether any falls away later, is negotiated. See guarantor strength and recourse.

Part 5: the way out

A construction loan is temporary. The lender wants to see how it ends.

• Sale. For-sale projects repay from closings. The lender sets a release price for each unit.
• Permanent loan. A rental project is refinanced once it is leased. A take-out commitment from a permanent lender, or evidence that the finished project fits a known program, makes this concrete.
• Conversion. Some banks write a construction loan that converts to a mini-perm term loan at completion.

Show the permanent loan the finished project would support, using the same coverage and loan to value tests a permanent lender would. If that loan is smaller than the construction loan, the gap is the lender’s first question.

Looking for a lender now? Find lenders for this in your state or see Construction lenders state by state.

How the money moves

Equity first. Most lenders require the borrower’s cash to be spent before the first loan dollar. The capital rule’s treatment of high volatility commercial real estate gives banks a regulatory reason as well. See the supervisory loan to value and HVCRE guide.

Draws. The loan is advanced in draws, usually monthly, against work in place. NCUA’s rule for credit unions spells out a process that banks follow in much the same form by policy: a line-item budget reviewed before closing, a requisition and disbursement process, release of funds “only after on-site inspections, documented in a written report by qualified personnel,” confirmation that the remaining funds are “sufficient to complete the project,” and confirmation with each draw “that no intervening liens have been filed.”

In balance. At every draw the money left in the loan plus remaining equity must cover the cost to finish. If the budget grows, the borrower funds the difference before the next draw.

The limits behind the lender’s answer

Supervisory loan to value limits for bank real estate loans (12 CFR part 365, appendix A)

These are ceilings for a bank’s own policy, measured against the value of the finished project. They are not what a bank will lend. For credit unions, 12 CFR 723.6 sets collateral value for a construction loan as “the lesser of the project’s cost to complete or its prospective market value.”

Worked example (hypothetical). A 40-unit apartment project will cost $10,000,000: $1,500,000 for land, $7,200,000 of hard costs, $900,000 of soft costs and $400,000 of interest reserve. The appraiser’s value when complete and stabilized is $12,500,000.

Value test. Say the bank’s policy limit is 70 percent of completed value. 70 percent of $12,500,000 is $8,750,000. The supervisory ceiling of 80 percent would be $10,000,000, which is the whole cost. A bank’s own limit sits below the ceiling.

Cost test. Say the bank also limits the loan to 75 percent of cost. 75 percent of $10,000,000 is $7,500,000.

The loan. The smaller figure, $7,500,000. Equity is $2,500,000. If the land is owned free and clear and the bank counts it at its $1,500,000 cost, the sponsor needs $1,000,000 more in cash, spent before the first draw.

Way out. If stabilized net operating income is $800,000 and a permanent lender tests coverage at 1.25 on a 6.5 percent, 30-year loan, each $1,000,000 costs about $75,800 a year, so $640,000 of payment supports about $8,440,000. That is above $7,500,000, so the takeout covers the construction loan with room.

The 70 percent, 75 percent, 1.25 and 6.5 percent are this example’s assumptions.

Finding construction lenders

The public record is thin. Banks report the balance of construction and land loans they hold, in call report item 1.a, split into 1-4 family residential construction and everything else. Credit unions report construction and development loans held and made this year. No public file lists individual construction loans, because Regulation C excludes temporary financing.

So search on the balance, the change over a year, capital and branches. Unused commitments on a bank’s page show construction money promised and not yet drawn. Then call, because appetite for construction can change from one quarter to the next.

Want a person to check the public record for a commercial construction loan? Request financing from The Lender Report’s operator. A person replies by email, usually naming lenders that have made loans like yours. It is free, it covers business and investment property loans only, and nothing is sent to a lender.

What the public record can and cannot tell you

It can: show which lenders hold construction loans, how the balance has moved, and which are large enough for the loan.

It cannot: show property types, loan to cost limits, pricing, whether a lender is adding construction loans now, or any single loan.

Questions to put to the lender

• Are you adding construction loans this year, for this property type?
• What are your limits on loan to cost and loan to completed value?
• How do you count land I already own?
• Which guaranties do you require, and does any fall away at completion or stabilization?
• How do draws work: who inspects, how long from request to funding, what is retained?
• Does the loan convert to a term loan, and on what test?

General information, not legal, tax or credit advice. A lender's own policy decides what it will do; ask it for the policy in writing.

Source and date appear beside each figure. Banks report balances, not loans made. Loans made come only from HMDA and SBA files. We do not audit filings and can make errors joining them. Report a problem