Want a Construction Loan Next Year? Start Preparing for It Today

One of the biggest mistakes I see builders and real estate investors make is waiting until they find the project to start thinking about financing.

They find the lot. They negotiate the purchase. They get excited about the plans. They calculate what the house should sell for when it is finished.

Then they call looking for a construction loan.

And that is when the surprises start.

The lender wants proof of previous projects.

The borrower says, “I’ve been building for years.”

The lender says, “Great. Show me.”

That little difference between having experience and being able to document experience can change an entire loan.

I see it constantly.

So if you think you may need construction financing six months, nine months or a year from now, there are things you should be doing today.

Not because getting a construction loan needs to be complicated. It doesn’t. But the builder who prepares ahead of time is in a completely different position from the builder trying to recreate five years of paperwork three days before closing.

12 Months Out: Build Your Financial Resume

If you are a year away from your next project, this is the perfect time to start.

The first thing I would do is create a permanent file documenting every project you have completed.

And don’t just make a spreadsheet saying:

123 Main Street
Built 2024
Sold for $650,000

That’s useful, but it may not be enough.

A construction lender may want to verify that you actually participated in that project and that it was the same type of construction you are asking them to finance now.

If you are requesting a ground-up construction loan, a lender may specifically want to see previous ground-up construction experience.

Doing ten cosmetic rehabs does not necessarily mean the lender will give you credit for ten ground-up builds.

That surprises people.

Keep whatever formal documentation you have from each project: HUD-1 settlement statements, closing disclosures, settlement statements, deeds, certificates of occupancy, permits, purchase and sale documents, builder contracts, LLC records and other paperwork connecting you to the property.

Think about it this way.

A lender does not know you personally.

The underwriter wasn’t standing next to you when the foundation was poured. They didn’t see you dealing with subcontractors, inspections, material delays and change orders.

They have to reconstruct your history from documents.

Make that easy for them.

I would create a folder for every completed property and keep it permanently.

Credit Matters More Than Many Builders Think

Another misconception I see is that because a construction loan is an asset-based or business-purpose loan, personal credit doesn’t matter.

It often matters.

Not every lender has the same minimum score, and there isn’t one magic construction-loan credit score.

One lender might consider a borrower in the 600s while another program, particularly on a larger or more complicated project, may want 680, 700 or higher.

The project itself can affect the requirement.

A straightforward $350,000 build by an experienced builder is one risk profile.

A $1.7 million heavy renovation is another.

The time to discover a credit issue is not after you have put money down on a property.

Twelve months out, review your credit.

If there are errors, address them.

If balances are unnecessarily high, start bringing them down.

If there is something that requires explanation, get ahead of it.

You don’t need perfect credit for every construction program. But stronger credit usually gives me more doors to knock on when I am looking for financing for you.

And options matter.

Start Building Liquidity Too

This is another area where borrowers sometimes misunderstand construction lending.

The lender is financing the project, but that doesn’t necessarily mean the lender is paying every dollar associated with it.

You may need money for the down payment or equity requirement, closing costs, appraisal, legal expenses, insurance, permits, architectural or engineering work and other soft costs.

Depending on the loan structure, you may also need liquidity or reserves remaining after closing.

That last part is important.

If you have $150,000 in the bank and need all $150,000 to close, an underwriter may not look at that the same way as a borrower who needs $100,000 to close and has another $100,000 available afterward.

Construction doesn’t always go exactly according to plan.

Lenders know that.

They want to see that the borrower isn’t financially wiped out the moment the loan closes.

So during that 12-month preparation period, don’t only think about raising the money necessary to get into the deal.

Think about what your financial statement will look like the day after closing.

Six Months Out: Start Looking Like a Borrower

At six months, I would start organizing everything as if we were going to submit your loan tomorrow.

Your experience history should already be documented.

Your credit should be under control.

Now start paying attention to liquidity, business structure and documentation.

If you’re borrowing through an LLC, make sure the LLC paperwork is current and organized.

Start keeping cleaner financial records.

Avoid moving large amounts of money around between accounts without a paper trail.

If money for the project is coming from another property sale, business account, partner or other legitimate source, document it.

If you are working with a general contractor, now is also the time to start documenting the GC.

Get the contractor’s license where applicable, insurance information, company information and project history.

And this brings up something important for newer builders.

Your GC’s Experience May Be Able to Help You

A lot of people come to us with a situation like this:

“I own the property. I have the money. I understand the project. But this will be my first ground-up build.”

That does not automatically mean the deal is dead.

There are programs available through VeeCasa Funding where, depending on the lender and project, we may be able to use the general contractor’s construction experience to help satisfy the experience requirement.

And this is the part people sometimes misunderstand:

That does not necessarily mean the general contractor has to become your partner.

It does not necessarily mean the GC has to own part of your LLC.

And it does not necessarily mean the GC becomes responsible for your construction loan.

The borrower can remain the borrower while the lender evaluates the qualified GC’s experience as part of the construction team.

Not every lender allows this, and the GC still has to be properly qualified and documented. But it can open a door for someone making the transition from investor or developer into their first ground-up project.

This is exactly why I prefer looking at these situations early.

If I know six months in advance that your personal experience is the weak part of the file, we can determine whether using an experienced GC solves it.

That’s much better than finding out six days before closing.

90 Days Out: The Project Needs to Become Real

At the 90-day point, we’re no longer talking about what you hope to build someday.

Now I want details.

• Property address.
• Purchase price or current value.
• Lot ownership.
• Construction budget.
• Plans.
• Permits or permit status.
• Draw schedule.
• Projected completion value.
• Exit strategy.
• General contractor.
• Borrower liquidity.
• Credit.
• Experience.

If the land is already owned free and clear, tell me.

That equity may make a meaningful difference in how the transaction can be structured.

If you bought the property previously, keep the closing statement.

If money has already gone into architectural work, site work, engineering or permits, keep the invoices and proof of payment.

You should also have a realistic construction budget by this point.

Not a number somebody put together in ten minutes because the lender requested one.

A real budget.

• Site work.
• Foundation.
• Framing.
• Roof.
• Windows.
• Mechanical systems.
• Electrical.
• Plumbing.
• HVAC.
• Insulation.
• Drywall.
• Interior finishes.
• Exterior work.
• Landscaping.
• Permits.
• Professional fees.
• Contingency.

The more credible the budget, the easier it is for me to talk intelligently with a lender.

30 Days Out: There Should Be Very Few Surprises

Thirty days before a target closing, we should not still be asking whether you have ever completed a construction project.

We shouldn’t just be learning your credit score.

We shouldn’t be finding out that your cash to close is tied up somewhere inaccessible.

And we shouldn’t be trying to figure out who the general contractor is.

At this point, we should be dealing with the normal moving pieces of a transaction: appraisal, title, insurance, final underwriting items, permits, construction documentation and conditions specific to the property.

Will lenders still ask questions?

Absolutely.

Every deal has something.

But there is a huge difference between answering an underwriting question and trying to create an entire borrower history during underwriting.

The Best Construction Loan Isn’t Always the One With the Highest Leverage

Builders naturally ask me:

“How much will they lend?”

That’s an important question.

But it shouldn’t be the only question.

A lender offering higher leverage may have stricter experience requirements.

Another lender may offer slightly less leverage but be much more comfortable using your GC’s experience.

One lender may have a better rate but tighter liquidity requirements.

Another may understand rural properties, modular construction or an unusual project type better.

My job isn’t simply to find the lender advertising the biggest percentage.

It is to find the structure that actually matches you, your project and your experience.

Sometimes that means preparing the borrower before preparing the loan.

My Advice: Keep a Permanent Builder File

If you plan on doing multiple projects, create one master folder today.

Inside it, keep:

• A project history with addresses, dates, costs and sale prices
• HUD-1s, closing disclosures or settlement statements
• Certificates of occupancy
• Permits and final approvals
• Before-and-after photographs
• LLC documents
• GC license and insurance information
• Contractor experience records
• Current personal financial statement
• Bank and liquidity documentation
• Construction budgets
• Plans and specifications
• Proof of completed sales

Every time you finish another project, add it.

Three years from now, when a lender asks me how many comparable projects you’ve completed, instead of you saying, “I think I did five or six,” we can send them the file.

That changes the conversation.

Don’t Wait Until You Need the Money

This is probably the biggest thing I would tell any builder.

Your construction loan doesn’t start when you submit the application.

It starts with what you’re doing today.

Your next project’s financing may depend on the documentation you save from the project you’re finishing right now.

Keep the HUD.

Keep the settlement statement.

Keep the CO.

Keep the permits.

Keep the invoices.

Keep the project photos.

Protect your credit.

Build liquidity.

And if you know you have a weakness, whether that’s experience, credit, cash to close or the type of project you’re planning, talk to someone before you are under a deadline.

At VeeCasa Funding, I’d much rather talk to a builder six or twelve months before a project and say, “Here are the three things I want you to work on,” than have that same conversation when the builder needs to close Friday.

The best construction financing files are usually not the ones where everything is perfect.

They’re the ones where somebody prepared early enough that nothing important comes as a surprise.

Have a project coming up? Start a pre-qualification and let’s talk about your builder file, or run the numbers with the construction loan calculator.

Building a ground-up or heavy rehab project? See VeeCasa Funding construction loans and our Builder Resources.