10 Questions to Ask Your Lender Before Taking a Construction Loan

Financing a new build isn’t just about getting approved—it’s about setting rules that keep your project on time, on budget, and drama-free. Before you sign anything, you want to know exactly how your lender handles rate locks, draw schedules, inspections, overruns, and the thousand little details that make or break a first-time build. The more clarity you get now, the fewer “surprises” you’ll pay for later. This guide gives you ten high-leverage questions to ask a lender upfront, along with the context you need to understand every answer. Treat it like a blueprint for the financing side of your project—because in construction, money is a tool, and tools work best when you know how to use them.

Each question below is designed to uncover policies that materially affect your costs, your timeline, and your stress. Ask them in order, take notes, and insist on written confirmation for anything that sounds conditional. Good lenders welcome these questions; great lenders answer them clearly and proactively. If one can’t or won’t, you’ve just saved yourself a headache by discovering it early.

1) What loan structure are you offering—construction-to-permanent (one-time close) or separate construction + end mortgage?

Start by clarifying the basic architecture of your construction loan. A construction-to-permanent (C2P), also called a one-time close, lets you close once, make interest-only payments during the build on the funds actually drawn, and then convert automatically to your long-term mortgage when you get a Certificate Of Occupancy. The upside is fewer closings, fewer duplicated fees, and less risk that changing markets (or your profile) derail the final mortgage. The alternative is a standalone construction loan followed by a separate refinance into your permanent loan—more moving parts, but sometimes more shopping power for the end mortgage.

Ask your lender to walk you through both options with line-item costs, including any rate-lock charges and expected conversion steps. If they offer both, have them show you a same-assumptions comparison for your target price, build length, and likely loan-to-value (LTV). A well-explained C2P is often best for first-timers; a separate construction + refi can win if you have a tight build timeline and expect to shop a better end rate later. Get the pros and cons in writing so you can compare apples to apples.

2) How and when can I lock my permanent rate—and do you offer a float-down?

Rates can move a lot during a nine- to twelve-month build. On a C2P, many lenders let you lock your permanent mortgage rate early, sometimes for 6–12 months. Long locks often come with price add-ons or extension fees; a float-down (a one-time option to lower your lock if market rates fall) can offset that risk. You want to know the lock window, the cost, any required deposit, extension rules, and whether a float-down exists—and exactly how you qualify to use it.

Get clarity on what happens if construction runs long. Do lock extensions cost a flat fee or a fractional point per 30 days? Are there deadlines for triggering the float-down? Do they lock the permanent rate at C2P closing or allow a delayed lock once you’re farther along? These details change your total cost by thousands over the life of the loan. Lock policy is risk management; make sure it aligns with a realistic schedule, not a best-case fantasy.

3) How do your draw schedules, inspections, and funding timelines work in practice?

Draws are the heartbeat of construction financing. Lenders release funds in stages tied to a draw schedule—foundation, framing, rough-ins, drywall, finishes, final. Each draw usually requires an inspection or progress verification before funds are released to the builder or title company. The rhythm and reliability of this process directly affects your builder’s cash flow and your project’s momentum.

Ask: Who orders inspections and how fast do they happen? What’s the turnaround time from inspection approval to money in the builder’s account? Are partial draws allowed if milestones don’t land perfectly on schedule? Are there per-draw inspection fees or admin charges? If a lender consistently takes five business days to approve and fund, your builder needs to know that. A good lender will outline the SLA (service-level agreement), the documentation required (photos, invoices, Lien Waivers), and how to avoid delays. The smoother the draw process, the fewer “dead weeks” you pay interest without progress.

4) What are all the fees—upfront, during construction, and at conversion?

A low headline rate can be overshadowed by fees. Request a full fee map: origination, underwriting, processing, appraisal (as-completed), long-term lock add-ons, inspection fees for each draw, title and recording costs, and any admin fees for managing the draw account. Ask how prepaids (property taxes and insurance escrows) are handled at closing—those aren’t lender fees, but they affect your cash to close. For C2P, confirm if there’s a separate conversion fee at the end or if conversion is automatic.

You also want the extension playbook: what’s the cost if the build slips 30–60–90 days? Are there penalties for too many draw requests? Do they offer lender credits to offset closing costs at the price of a slightly higher rate? Ask them to price two or three structures so you can decide whether you want to “buy the rate down” with points or conserve cash. Transparency here is a great proxy for how they’ll handle every other detail.

5) Do you size the loan by lesser of cost or appraised value, and how do you treat land equity?

Your maximum loan is typically governed by LTV against the as-completed appraisal—but many lenders calculate against the lesser of cost or value. That nuance matters. If your cost basis is $600,000 and the appraisal is $630,000, a lender using “lesser of” will size off $600,000, not $630,000. The difference can move your required equity and your final approval. Clarify which rule they use, and get an example using your numbers.

If you already own the lot, ask how land equity counts toward your down payment. Will they credit full current market value, original purchase price, or the lower of the two? How recent must the land appraisal be? If you’re purchasing land now, can it be bundled into the C2P, or must you close separately? Also ask: What happens if the appraisal comes in low? Will they accept design tweaks or scope reductions without restarting underwriting? Understanding all of this upfront prevents last-minute cash surprises.

6) What are your qualification requirements—credit score, DTI, reserves—and what do you require from my builder?

Construction underwriting evaluates two files: you and the project. For you, ask the lender for their minimum credit score thresholds, target debt-to-income (DTI), and expected cash reserves after closing (e.g., a few months of payments plus a contingency reserve). If you’re self-employed or your income is variable, clarify the documentation (tax returns, year-to-date P&L, bank statements) so you can prepare cleanly.

For the project, lenders typically require a licensed, insured general contractor. Ask if they maintain a preferred list or will vet your chosen builder. What documentation do they need—license, insurance certificates, W-9, references, a detailed budget and spec sheet, a milestone draw schedule? If you want to be an owner-builder, ask whether they offer that program and what extra conditions apply (higher down payment, more reserves, experienced subs). A lender’s builder policy can be decisive; make sure it fits your plan before you fall in love with a design.

7) How do you handle change orders, overruns, and contingency use?

Every build changes. You want a lender with a clear, practical change-order process. Ask whether the loan includes a formal contingency line item, what it can be used for, and how increases are approved. If a field discovery (e.g., soil remediation) increases cost, will they allow a budget reallocation? Can you add cash mid-stream to cover upgrades without triggering a re-underwrite? What documentation is required for a change order to be funded—revised contract, invoices, approvals?

Clarify the difference between must-do changes (code-driven fixes, engineering updates) and nice-to-have upgrades (premium windows, luxury appliances). Lenders often fund the former from contingency but may require cash for discretionary upgrades. The goal is to avoid work stoppages because a cost change is stuck in paperwork limbo. A lender who explains how to keep the budget, appraisal, and draws aligned is a lender who understands real jobsites.

8) What are your inspection standards and what could delay funding at each draw?

Inspection friction is the silent project killer. Ask who performs inspections (in-house, third-party), how they measure progress (percent complete by trade, milestone checklist), and what photos or lien waivers must accompany a draw. If an inspector disagrees with the builder on percent completion, how is it resolved? Are re-inspections fast and affordable? What if weather delays push exterior work—can interior progress be funded independently?

Also ask about holdbacks. Some lenders retain a small percentage from each draw until the end; others hold only a final retainage. Understand whether specialty items (e.g., custom windows, long-lead HVAC) can be partially funded with proof of deposit or must be onsite to count. Clarity here keeps your builder’s schedule and your lender’s rules in sync, which is the best way to avoid the dreaded “crew is waiting but funds aren’t here” day.

9) What insurance and title protections do you require during construction and at conversion?

During construction, you (or your builder) will need builder’s risk insurance to cover the structure and materials while the home is going up. Your builder should also carry general liability and workers’ comp. Ask for coverage minimums, who pays the policies, whether materials in transit or stored offsite are covered, and how claims affect draw timing. If you’re in a flood or wildfire zone, ask for those requirements early—your permanent mortgage won’t convert without compliant coverage.

On the title side, lenders typically require construction loan endorsements, handling of mechanic’s lien risks, and signed lien waivers with each draw. Ask how lien waivers are collected and whether your title company or the lender manages them. For the final step, confirm the path to your Certificate of Occupancy, punch-list handling, and what title updates are needed to convert to the permanent loan. Clean insurance and title workflows are the scaffolding around your financing—rarely visible, absolutely essential.

10) What are the most common deal-killers you see—and how do you help borrowers avoid them?

A candid lender can save you from preventable pain. Ask them to list the top reasons builds stall or approvals get downgraded: mismatched plans vs. budget, insufficient reserves, late permits, low appraisal, or builder paperwork gaps. Then ask what they proactively do to prevent those issues—prep checklists, document templates, early appraiser engagement, or pre-close reviews with your GC.

Also get crystal clear on timelines: How long from full submission to clear-to-close? How long for appraisal? What’s the average time from draw request to funding? What happens if construction exceeds the allowed duration—are there extension steps and costs, or does the file require re-underwriting? You want a lender who treats your build like a project with milestones, not just a loan with a balance. Their answers should sound like a playbook, not a shrug.

Bonus: What does your communication look like during the build?

It’s not just what they do—it’s how they do it. Ask whether you’ll have a dedicated construction specialist or a general call center. Is there a portal for uploading draw documents, tracking inspections, and seeing disbursements? Will they proactively alert you when something is missing, or do you find out only after a delay? Projects thrive on rhythm; lenders who communicate clearly help you keep it.

You can also ask how they collaborate with your builder. Do they host a kickoff call after closing to align on the draw schedule and documentation? Do they provide a specimen draw package so your GC knows exactly what to submit? When lender and builder share a cadence, your site hums and your interest costs stay lean.

How to Use the Answers (A Mini-Scoring Framework)

After each lender conversation, score them on four axes: Clarity, Speed, Flexibility, and Total Cost. Clarity is about how well they explain the process and put promises in writing. Speed is their SLAs for appraisal, conditions, inspections, and funding. Flexibility measures sensible policies for extensions, change orders, and contingency use. Total Cost is the full picture—rate, points, fees, lock costs, and extension risk. A lender who wins on three out of four is usually the right partner—even if another quotes a headline rate that’s a hair lower.

Then, test their answers against your build plan. If your design depends on premium windows with long lead times, you want a lender who can fund deposits and handle partial draws. If your budget is tight, prioritize predictable fees and a reliable float-down option. If your timeline is ambitious, a lender with fast inspections is more valuable than one with a slightly lower rate but slow funding.

Your Pre-Commit Checklist (Copy/Paste for Your Notebook)

• Structure: C2P or standalone? Conversion steps and costs spelled out.
• Rate: Lock window, float-down rules, extension fees, written scenarios.
• Draws: Schedule, inspection process, turnaround times, per-draw costs.
• Fees: Full fee map (origination, appraisal, lock, inspections, admin, title, recording).
• Valuation & LTV: “Lesser of” policy, land equity treatment, low-appraisal plan.
• Underwriting: Credit/DTI/reserves, builder approval docs, owner-builder option.
• Changes: Change-order funding rules, contingency use, cash vs. financed upgrades.
• Ins/Title: Builder’s risk, GL, workers’ comp, flood if needed, lien waiver process.
• Delays: Extension policies/costs, max construction duration, conversion requirements.
• Comms: Dedicated specialist, portal access, builder kickoff, sample draw package.

The Bottom Line

Great construction financing is as much process as price. The right lender gives you a predictable draw schedule, realistic rate-lock options, and a documented path to conversion that survives real-world hiccups. Ask these ten questions early, push for written answers, and choose the partner whose policies match your actual build—not an idealized rendering. When your lender’s rules fit your timeline, your builder’s rhythm, and your budget’s tolerance for the unexpected, your financing becomes a quiet, reliable backdrop to the noisy, exciting work of turning a set of plans into a home.

With those answers in hand, you’ll sign with confidence—and spend the next few months making smart field decisions instead of battling paperwork. That’s how you keep your project moving, your interest costs contained, and your energy focused where it belongs: getting from foundation to framing to front-door keys on time and on budget.