Banks vs. Credit Unions vs. Brokers: Who Actually Does Construction Loans Best?

You’ve got plans on paper, a builder who’s fired up, and a lot you’re itching to break ground on. Now comes the part almost no one gets excited about: figuring out who should finance the build. Should you go straight to your bank, lean on a local credit union, or let a mortgage broker shop it around? I’ve sat on both sides of that table—helping clients run cost comparisons and also untangling projects that went sideways because the wrong lender was picked. Construction loans are not a commodity. The lender you choose can shape your timeline, cash flow, and even your stress level for the next 8–18 months. Let’s walk through how construction loans actually work, how banks, credit unions, and brokers approach them differently, and where each excels. I’ll share real examples, numbers you can use to compare, and a simple way to decide who’s likely to serve you best.

Construction loans in plain English

When you finance a build, you’re not taking a standard mortgage. You’re getting a short-term, interest-only loan that funds in stages—called “draws”—as the home is built. When the home’s complete, your loan either converts into a regular mortgage (construction-to-permanent, or “one-time close”) or you refinance/pay it off with a new mortgage (two-time close).

Here’s what you’ll see in the wild:

• Construction-to-permanent (C2P, “OTC”)
• One closing up front, then it converts to a 15/30-year mortgage when you get the Certificate Of Occupancy.
• Pros: One set of closing costs, you don’t have to re-qualify if rates spike.
• Cons: Fewer lenders offer it, and some price the rate higher for the convenience.

• Stand-alone construction (two-time close)
• You close on a short-term construction note first, then refinance when the build is done.
• Pros: Sometimes cheaper during construction, more lenders available.
• Cons: Two closings, you’re exposed to the future rate market, and you’ll pay a second round of closing costs.

• Renovation construction loans
• FHA 203(k), Fannie Mae HomeStyle, and Freddie Mac CHOICERenovation wrap purchase + rehab into one loan.
• Pros: Lower down payment options, especially powerful for homes that need work.
• Cons: Heavier paperwork, stricter contractor rules, smaller max loan amounts for the rehab piece.

How lenders actually evaluate your project

It’s never just about your credit score. A construction loan is approved on three legs: you, the builder, and the project.

• You (the borrower)
• Credit: 680+ is a common floor; many lenders want 700+ for C2P or owner-builder scenarios.
• Debt-to-income ratio (DTI): Aim for 43–45% max. Lower is better.
• Reserves: Expect 6–12 months of principal/interest/taxes/insurance (PITI) in the bank (post-closing).
• Income history: W-2 is straightforward; self-employed borrowers need 1–2 years of returns and cash flow analysis.

• Builder
• License, insurance, bonding (depending on state).
• Track record: 2+ years building at similar price points.
• Financials or at least a banker’s letter proving they’re stable.
• Acceptable contract type: Most lenders prefer fixed-price or a capped cost-plus with a clear contingency.

• Project
• Loan-to-cost (LTC): Most lenders max out at 80–90% of the total project cost (land + hard costs + soft costs).
• Loan-to-value (LTV): Based on the “as-completed” appraisal; often capped at 70–85% depending on program and occupancy.
• Contingency: 5–10% of hard costs set aside. Higher for complex builds.
• Plans, specs, and a line-item budget (lender will scrutinize allowances like cabinets, fixtures, and landscaping).

The money mechanics

• Rate during construction
• Often tied to Prime or SOFR plus a margin. A typical range the last couple years has been roughly Prime + 0% to +1.5%, or SOFR + 3–5%.
• Translation: 7.75–11% during construction is common, depending on market conditions and your profile.

• Permanent rate (if C2P)
• You’ll lock a rate for the end loan—sometimes up to 9–12 months with extensions. Extended locks often cost extra (0.25–1.00 points).

• Fees to expect
• Origination: 0.5–1.5% of the loan amount.
• Appraisal (as-completed): $800–$1,600+ depending on project complexity.
• Draw inspections: $100–$250 each; 5–12 draws typical; total $600–$2,500.
• Title updates/endorsements per draw: $75–$200 each.
• Admin/builder review fees: $250–$1,000.
• Extended lock/float-down: 0.125–0.50 points (varies a lot).
• Total closing costs: 2–5% of the loan amount is a reasonable planning range.

• Timeline (realistic)
• Pre-qual: 24–72 hours.
• Builder approval: 3–10 business days.
• Appraisal: 2–4 weeks (can drag to 6+ in busy markets).
• Underwriting: 2–3 weeks after full file received.
• Closing to first draw: 3–7 business days after funding.
• Draw turn times: 1–3 business days per draw after inspection.

Banks vs. credit unions vs. brokers: who’s best at what?

There’s no universal winner. Each option has a “sweet spot” where they shine and scenarios where they struggle. Here’s how to think about it.

Banks

What they tend to do well

• Depth of product: Bigger banks and strong regionals often have robust construction departments, C2P options, jumbo one-time closes, extended rate locks, and dedicated draw teams.
• Process control: In-house underwriting, in-house or contracted draw inspectors, and clear protocols. That consistency matters when the weather delays framing for two weeks and you need a partial draw.
• Large loan amounts: Comfort going jumbo and super-jumbo with stricter documentation.
• Extended rate locks: 6–12+ months with Float-down options; handy if your build might run long.

Where they struggle

• Flexibility: Policy is policy. Banks rarely bend overlays (e.g., DTI caps, self-employed income addbacks, or owner-builder exceptions).
• Fees: Often mid-to-high. They’ll charge for the machinery they’ve built.
• Niche programs: Fewer off-the-beaten-path options like VA one-time close or unusual property types.

Best-fit borrower profiles

• High-complexity builds, high loan amounts, or anyone who needs a long extended lock and predictable draw administration.
• Borrowers with straightforward W-2 income and strong reserves who prefer a tight, professional process over absolute lowest fees.

Credit unions

What they tend to do well

• Relationship pricing: If you’re a member, have deposits, or move your accounts over, you may get below-market fees or a better margin.
• Flexibility on the edges: Some CU underwriters can be more pragmatic on common-sense exceptions (not always, but more often than banks).
• Local appraiser pools: Better local knowledge for the as-completed value, which can make or break your LTV.
• Service: Actual humans who pick up the phone, and loan officers who know the local builders.

Where they struggle

• Product breadth: Fewer C2P programs, shorter rate locks, limited jumbo options. Some only offer stand-alone construction.
• Draw process resources: Smaller teams can mean slower draw turn times or fewer funding days per week.
• Loan amount caps: Some credit unions cap construction loans lower than big banks.

Best-fit borrower profiles

• Primary residence builds in the local area, moderate loan amounts, and borrowers who value a relationship trade-off (slightly slower draw for lower fees and a friendly process).
• Folks who can leverage membership perks (discounted points, waived fees).

Brokers

What they tend to do well

• Shopping the market: A good broker can run your file to 3–6 lenders and find the outlier who loves your exact scenario—VA OTC, renovation loans, or a lender friendly to self-employed income.
• Access to niche programs: One-time-close VA/FHA/USDA, alternative documentation, and specialty property types.
• Rate competition: Brokers can sometimes beat retail bank pricing by placing you with a correspondent lender offering sharper margins.

Where they struggle

• Process control: Brokers depend on the lender’s draw department and underwriting turn times. If the lender’s construction desk is understaffed, you feel it.
• Consistency: Program availability changes fast. If a lender pulls a program mid-process, you’re starting over.
• Post-close support: Draw issues and change orders can feel like telephone-tag between you, the broker, lender, title, and builder.

Best-fit borrower profiles

• Borrowers needing a specific program (e.g., VA 0% down OTC, or a jumbo C2P with a float-down feature) that local banks/CUs don’t offer.
• Self-employed borrowers who benefit from a broker’s ability to match the file to an underwriter comfortable with your income profile.

A quick word on private/hard-money lenders

These are the “emergency lane” of construction financing.

• Pros: Fast (1–2 weeks), flexible on credit/income, willing to do messy deals, owner-builder friendly.
• Cons: Expensive (10–13% interest, 2–4 points), short terms (6–12 months), heavy fees, and aggressive default clauses.
• Use-case: Bridging a timing gap, finishing a near-complete project to qualify for conventional takeout, or rescuing a deal that lost its lender mid-construction.

Real-world scenarios: who wins and why

Case study 1: The high-end custom with moving parts (Bank wins)

• The project: $1.45M build in a high-cost suburb. Land is owned, valued at $500k. Build contract: fixed price with allowances.
• Borrowers: Two W-2 professionals, 780 FICO, $350k combined income, 12 months reserves. They want one closing and a long rate lock.
• Bank offer:
• C2P, 80% LTC, capped at 75% LTV of as-completed value.
• Construction rate: Prime + 0.5% (interest-only on draws).
• Extended lock: 12 months with a one-time float-down for 0.5 points.
• Draws: 10 draws, 48-hour turn time, same-day wires on funding days.
• Credit union offer:
• C2P not available above $1M; they offer a stand-alone construction loan at Prime + 1.25%, 9-month term, max 70% LTV, 75% LTC.
• Broker offer:
• Two lenders with C2P, but only 6-month locks and no float-down feature; draw department reviews twice a week.

Why the bank wins

• The extended lock + float-down protects a large end-loan in a volatile rate environment.
• The bank’s construction department can handle complex change orders without pausing draws for a week.
• The CU’s LTV cap would force more cash in, and the broker’s lender didn’t have the draw cadence the builder needed.

Estimated costs

• Interest carry during construction: Assuming an average outstanding balance of $900k at 9% for 10 months ≈ $67,500.
• Fees: 1% origination ($9,000), $1,200 appraisal, $1,500 total draw/title fees, $750 builder review = ~$12,450.
• The long lock fee (0.5 points on permanent balance) adds cost, but the float-down saved 0.375% on the final rate—worth roughly $90/month on a 30-year amortization. Over five years, that’s ~$5,400 pre-tax.

Case study 2: The local primary home build, moderate budget (Credit union wins)

• The project: $650k total project cost; borrowers own the lot with a $50k mortgage.
• Borrowers: Teacher and firefighter, 720 FICO, DTI at 39%, 8 months reserves, strong community membership ties.
• Credit union offer:
• Stand-alone construction at Prime + 0.25%, 12-month term, 85% LTC, 80% LTV.
• Waived origination fee for members with direct deposit and checking.
• Draws twice weekly, 24–48 hour inspections.
• Option to lock a 60-day permanent rate at completion with a free 15-day extension.
• Bank offer:
• C2P at Prime + 0.75%, 80% LTC/LTV, 1% origination, 9-month lock at additional cost.
• Broker offer:
• C2P with 0.875% origination, competitive rate, but lender requires 10% contingency and builder had to be on a pre-approved list (they weren’t).

Why the credit union wins

• The waived origination + near-bank rate saves real money.
• The builder is local and has a relationship with the CU, which smooths inspections and contract reviews.
• The CU allowed 85% LTC with their in-market appraiser coming in strong on as-completed value.

Estimated costs

• Interest carry: Average outstanding $350k at 8.75% for 10 months ≈ $25,500.
• Fees: $0 origination, $1,000 appraisal, $800 total inspections/title, $300 admin = ~$2,100.
• Their CU membership and deposits saved them ~ $5,500–$8,000 versus the bank.

Case study 3: VA eligible, wants one closing and 0% down (Broker wins)

• The project: $520k project, land is gifted equity from family.
• Borrower: Active-duty service member, 740 FICO, relocating; wants to avoid two closings and minimize cash to close.
• Broker offer:
• VA one-time-close construction program with 0% down, 12-month construction, interest-only on draws.
• Builder approval handled by lender; draws weekly; no PMI; funding fee financed.
• Bank/CU offers:
• Bank doesn’t offer VA OTC; CU can do stand-alone construction with 5% down and then a VA refi—but that’s two loans.

Why the broker wins

• Program access. The broker placed the borrower with a niche correspondent lender offering VA OTC, including float-down options for the permanent rate.
• The builder approval process was already mapped out, saving 2–3 weeks.

Estimated costs

• Interest carry: Average outstanding $260k at 9.25% for 10 months ≈ $20,000.
• Fees: 1.25% origination, $1,200 appraisal, $1,200 draw/title fees ≈ $8,700 total financed.
• The financed VA funding fee (based on use and service status) added to the loan balance, but avoided cash outlay.

Case study 4: Mid-build rescue (Private lender bridge)

• The problem: A small builder ran 45 days late; the bank’s construction period expired. The borrower needed 60 more days and $125k to finish.
• Private lender offer:
• 3-month bridge at 12% interest, 2 points, interest-only, with a release upon certificate of occupancy.
• Cost trade-off:
• 2 points on $125k = $2,500 upfront plus 12% interest for 3 months ≈ $3,750. Painful, but it salvaged the project.
• Exit:
• Borrower refinanced into a conventional fixed rate 45 days later. Without the bridge, they would’ve faced default and lien issues.

Costs and cash flow: do the math early

A construction loan is as much about cash flow planning as it is about rate-shopping. Here’s a simple framework to model your costs.

1) Total project budget

• Land (net of any loans)
• Hard costs (materials, labor)
• Soft costs (architect, permits, utility connects, engineering, surveys)
• Contingency (5–10% of hard costs; some lenders require 10% on custom builds)
• Interest reserve (optional): You can set aside a portion of your loan to cover interest during construction.

2) Lending constraints

• Max LTC: Often 80–90%. For a $800k project, you might get $640–720k max.
• Max LTV: Based on as-completed appraisal. If your appraised value is $900k and lender caps LTV at 80%, that’s $720k max regardless of cost.

3) Cash to close

• Down payment to meet LTC/LTV.
• Closing costs and fees.
• Prepaids (insurance binders, taxes escrow).
• Reserves (must remain after closing).

4) Interest carry estimation

• Average outstanding balance x annual rate x months/12.
• For a 10-month build at 9% with an average outstanding of 50% of the total loan: Total interest ≈ loan x 0.5 x 0.09 x 10/12.

Example: $600k construction loan, 10 months, 9% rate

• Average outstanding ≈ $300k.
• Interest ≈ $300k x 0.09 x 10/12 ≈ $22,500.

5) Draw schedule planning

• Typical sequence:
• Draw 1: Mobilization/foundation
• Draw 2: Framing
• Draw 3: Rough-in MEP (mechanical, electrical, plumbing)
• Draw 4: Insulation/drywall
• Draw 5: Interior finishes
• Draw 6: Exterior/landscaping
• Final: Punchlist and closeout
• Lenders pay for work in place, not upfront. Plan deposits to subs accordingly.

Pro tip: Negotiate with your builder to align their deposit requests with what your lender can fund. Many lenders refuse to fund deposits for custom items until they’re onsite. Using a small “mobilization” line item and vendor letters can help.

Timeframes you can actually build around

• Pre-application: 1 week to gather docs, builder package, and budget.
• Application to approval: 3–5 weeks depending on appraisal and builder approval.
• Closing to first draw: 1 week.
• Construction duration: 6–12 months for typical custom; 12–18 for complex builds.
• Conversion/refi: 1–3 weeks after certificate of occupancy.

Missed inspections, weather, supply chain hiccups, and change orders are normal. What matters is your lender’s responsiveness when your draw is queued up and your trades are waiting to be paid.

Common mistakes that derail construction loans (and how to avoid them)

• Picking the cheapest rate without vetting the draw department
• Ask: How many funding days per week? Average inspection-to-fund time? Who resolves inspection disputes?

• Underestimating allowances
• Cabinets, tile, lighting, HVAC equipment—all climbed in price in recent years. Over-shoot allowances by 10–15% rather than under.

• Skipping a realistic contingency
• Five percent might work for a production plan; ten percent is more realistic for custom homes or tricky sites.

• Builder not approved until the last minute
• Get builder approval out of the way before appraisal order. If your builder is rejected, you’ve wasted weeks.

• Assuming the lender will fund deposits
• Most won’t. Structure payments to vendors accordingly, or plan cash to bridge special-order items.

• Rate lock timing mistakes
• For C2P, know your lock length and expiration. Budget for an extension if the schedule is optimistic.

• Incomplete lien waiver process
• Require conditional and unconditional waivers per draw. Your title company should verify, but you are the owner; stay engaged.

• Owner-builder attempts without a clear plan
• Very few lenders allow it. Those that do will want high FICO, low DTI, large reserves, and proven experience. Costs often end up higher than hiring a GC once delays and rework are factored in.

Step-by-step: how to shop for a construction loan like a pro

1) Line up the builder package first

• License, insurance, references, sample budget, schedule, and at least two completed projects at similar scope.
• Ask your builder which lenders they’ve worked with and liked.

2) Prepare your borrower file

• Two years of W-2s and tax returns (or business returns if self-employed).
• Recent paystubs or YTD P&L.
• Asset statements for the last 60 days.
• If land is owned: deed, current mortgage statement, survey.

3) Build a clean budget

• AIA-style line items or detailed spreadsheet: hard costs, soft costs, contingency, permits, utility connects, landscaping, driveways, septic/well if applicable.
• Include allowances that match your actual taste and quality level.

4) Request quotes from at least three sources

• One bank with a dedicated construction department.
• One local credit union.
• One strong construction-savvy broker.

5) Compare using a single apples-to-apples worksheet

• Construction rate (index + margin) and estimated interest carry.
• Permanent rate option, lock length, and float-down terms.
• LTC and LTV caps.
• Origination/discount points.
• All admin, draw, and title fees (ask for a fee sheet).
• Draw process: turn times, inspection fees, title update costs.
• Contingency requirement and whether it’s part of the loan.
• Extension policy and cost for construction period and rate lock.

6) Speak to the construction admin team

• Ask for the construction draw desk phone number and call them. Are they responsive? Do they fund daily? What’s their current backlog?

7) Confirm appraiser panel

• Local appraisers for custom homes matter. If the lender uses a national AMC unfamiliar with your market, values can come in low.

8) Lock in the benefits

• Negotiate a cap on inspection/title update fees.
• Ask for one free rate lock extension or a discounted float-down.
• Request a waiver or reduction on admin/builder review fees if your file is clean.

What each option tends to cost (typical ranges)

• Banks
• Rate: Prime + 0% to +1.0% during construction.
• Points: 0.75–1.25% typical for C2P.
• Draw/title fees: Mid-range but reliable.
• Extended locks: Available, cost extra.
• Net: Often not the cheapest sticker price, but strong value when you need capacity and stability.

• Credit unions
• Rate: Prime – 0.25% to +0.75% (member dependent).
• Points: 0–1.0% (membership can reduce or waive).
• Draw/title fees: Lower, but turn times vary.
• Locks: Shorter.
• Net: Very competitive for local, primary residence builds.

• Brokers
• Rate: Depends on lender placement; can beat banks, especially for niche programs.
• Points: 0.75–1.5% typical; sometimes lender-paid.
• Draw/title fees: Vary by end-lender. Ask early.
• Locks: Program-dependent; some excellent, some limited.
• Net: Best when you need a specific program or underwriting flexibility.

• Private/hard-money
• Rate: 10–13%.
• Points: 2–4.
• Fees: Heavy.
• Net: Use only as a bridge or rescue.

Owner-builder: can you finance it?

A handful of lenders allow it, but the bar is high.

• Requirements you may see
• 720–740+ FICO.
• 65–75% max LTC/LTV.
• 12–18 months reserves.
• Detailed resume with relevant construction management experience.
• Third-party inspections and potentially a construction management consultant.

• Alternatives
• Hire a licensed GC “on paper” at a reduced fee for oversight and liability.
• Use a small private lender for part of the project, then refinance when dried-in to a conventional lender.

• Reality check
• Savings can evaporate via delays, rework, and draw friction. If your day job is demanding, consider at least a hybrid approach with a paid site superintendent.

Renovation loans: who handles them best?

• FHA 203(k)
• Often broker territory because many banks avoid the admin burden.
• Lower down payment (3.5%), but strict contractor rules, draws, and HUD consultants.
• Great for primary residences needing significant rehab.

• Fannie Mae HomeStyle / Freddie CHOICERenovation
• Brokers and some banks offer these.
• Conventional underwriting, 5%+ down (owner-occupied), flexible improvements, but capped by conforming limits.
• Credit unions with strong mortgage arms can be competitive here, too.

• Local bank/credit union portfolio renovation loans
• Shorter terms, interest-only during renovation, then roll to a fixed or refi.
• Faster approvals with a relationship, but not standardized like agency programs.

If you’re buying a fixer and rolling in $75–200k of rehab, a broker who lives and breathes 203(k)/HomeStyle is often your best guide. For a $400k gut job with structural changes, some regional banks with portfolio renovation programs shine because they can underwrite around quirks (foundation work, temporary habitability) that agency programs treat rigidly.

How lenders think about risk (and why it matters to you)

• LTC vs. LTV tension
• If your project costs $800k but appraises at $750k as-completed, LTV will cap your loan. That’s where a lender with strong local appraisers (often CUs) can help if comps support your finishes and design.

• Contract type
• Fixed-price Contracts reduce lender risk and speed approvals.
• Cost-plus can work but expect the lender to demand higher contingency and stricter draw oversight.

• Site risk
• Septic systems, wells, retaining walls, and hillside builds trigger deeper scrutiny and bigger contingencies.

• Builder concentration
• If your builder has too many jobs leveraged with the same lender, some banks will throttle new approvals. Credit unions are less likely to have concentration issues but can still cap exposure.

What to ask every lender before you sign

• What’s your construction rate structure (index + margin), and is there a rate cap?
• Do you offer C2P? If so, what lock lengths and float-downs are available, and what do they cost?
• What are your max LTC and LTV? How do you handle gifted equity and owned land?
• What is the required contingency? Can it be part of the loan?
• How fast are draw inspections and fundings right now? How many funding days per week?
• Will you fund deposits for long lead-time items? If not, how do you handle special orders?
• What’s your builder approval process and timeline? Any prohibited contract types?
• Who does your appraisals—local panel or national AMC?
• How do you handle change orders mid-stream? Who approves them and how long does it take?
• What happens if the build runs past the construction term? Extension policy and cost?

Document these answers in one place. It’s shocking how much clarity you’ll get from five minutes of Q&A with the construction admin team.

How to negotiate smarter

• Bundle your banking relationship
• Moving deposits or setting up business accounts can earn you 0.125–0.25% in margin reductions or fee waivers at a CU or regional bank.

• Ask for an inspection/title fee cap
• A not-to-exceed number gives you budgeting certainty and avoids death-by-a-thousand-fees.

• Float-downs and extensions
• If you’re paying for an extended lock, ask for a free or low-cost float-down if market rates drop meaningfully.

• Origination concession
• If you present two competitive quotes, many lenders will shave 0.25–0.50 points to win a strong, clean file.

• Builder acceptance fee waiver
• Offer to provide a full builder package upfront; ask to waive or reduce the review fee.

Red flags to walk away from

• Vague or constantly shifting answers on draw timing.
• Lender won’t let you talk to the construction desk directly.
• No local appraisers for custom builds in a non-cookie-cutter market.
• Lender refuses to clarify change order policy in writing.
• A broker who can’t name the end-lender’s construction process partner or draw platform.

Mechanics liens, title updates, and staying out of trouble

• Require conditional lien waivers with each draw request; collect unconditional waivers once funds clear.
• Your title company should issue date-down endorsements with each draw. Confirm the fee and timeline.
• If a sub files a lien, your lender may freeze draws until it’s resolved. Stay ahead with signed waivers and clear vendor communication.

Should you roll interest into the loan?

An interest reserve can be a lifesaver for cash flow, but there’s a catch.

• Pros: Predictable monthly outflow; no need to write checks during construction.
• Cons: It reduces your available funds for actual construction; if cost overruns hit, you may run out of room.
• Middle path: Smaller reserve + contingency in the loan; keep some liquid savings as a backstop.

A practical decision framework

Use this quick filter to pick where to start:

• Start with a bank if
• Loan amount is large or jumbo, you want a one-time close with a 9–12+ month lock, and your builder is comfortable with strict draw protocols.
• You value a deep construction department and predictable timelines over slightly lower fees.

• Start with a credit union if
• The project is local, owner-occupied, and your loan amount is moderate.
• You’re willing to move deposits to win relationship pricing and you can live with shorter locks or a stand-alone structure.

• Start with a broker if
• You need a specialty program (VA/FHA One-Time Close, renovation loans, or a niche underwriting angle).
• Your file has quirks—self-employment, non-warrantable features, or you want multiple offers without doing all the legwork.

• Consider private/hard-money only when
• You’re bridging a gap or rescuing a late-stage build, and the alternative is default or a stalled project.

Quick math: sample draw schedule and interest carry

Let’s say you have a $700k construction loan for a 10-month build at 9% interest:

• Draw 1 (Month 1): $70k for site/foundation. Interest Month 1: ~$525.
• Draw 2 (Month 2): +$105k framing. Balance $175k; Interest Month 2: ~$1,313.
• Draw 3 (Month 3): +$105k MEP rough-ins. Balance $280k; Interest Month 3: ~$2,100.
• Draw 4 (Month 4): +$105k exterior/drywall. Balance $385k; Interest Month 4: ~$2,888.
• Draw 5 (Month 5): +$105k interior finishes. Balance $490k; Interest Month 5: ~$3,675.
• Draw 6 (Month 6): +$70k cabinets/tile. Balance $560k; Interest Month 6: ~$4,200.
• Draw 7 (Month 7): +$70k flooring/trim. Balance $630k; Interest Month 7: ~$4,725.
• Draw 8 (Month 8): +$35k fixtures. Balance $665k; Interest Month 8: ~$4,993.
• Draw 9 (Month 9): +$21k landscaping. Balance $686k; Interest Month 9: ~$5,145.
• Draw 10 (Month 10): +$14k punchlist/final. Balance $700k; Interest Month 10: ~$5,250.

Total estimated interest ≈ $34,814. This is back-of-the-napkin math, but it’s helpful for budgeting. Your lender can create a more tailored interest curve based on your builder’s schedule of values.

Documentation checklist to keep the train moving

• Borrower
• IDs, income docs, asset statements, insurance binder quotes, reserve documentation.
• Property
• Plans/specs, stamped drawings (if required), soils report (if applicable), permits or permit status letter.
• Builder
• License/insurance, W-9, resume, references, supplier letters, sample schedule.
• Budget
• Detailed line items, allowances, contingency, sitework, utility connections, driveway/landscaping.
• Title/land
• Survey, deed, any easements, HOA docs.

Keep digital copies organized. A fast response to underwriting conditions can shave weeks off your timeline.

What changes mid-build and how to handle it

• Change orders
• Expect them. Have your builder submit them formally with pricing and schedule impact.
• Lender approval timing: ask for a 48–72 hour SLA. Keep a small cash buffer for requests the lender won’t cover.

• Cost overruns
• First, use contingency. If that’s exhausted, lender may allow a budget reallocation.
• If reallocation won’t cut it, you might need to bring cash in or set up a small subordinate loan if allowed.

• Schedule slips
• Communicate early. Most lenders will extend construction terms for a reasonable fee if progress is documented.

Regional quirks to be aware of

• Well and septic
• Lenders often require final approvals and sometimes Escrow Holdbacks for landscaping or final grading.

• Wildfire or flood zones
• Expect higher insurance, potential defensible space requirements, and underwriter scrutiny of site mitigation.

• Coastal and hurricane-prone areas
• Windstorm coverage, impact-rated openings, and stricter appraiser comps can affect valuation and insurability.

• Winter climates
• Concrete, roofing, and exterior work may pause; build your schedule with realistic weather windows and plan draw timing around them.

How I advise clients when everything looks “close”

If the costs and rates are within a hair between a bank and a credit union, I lean toward:

• The lender with the strongest construction admin team and a clear draw calendar.
• The lender using truly local appraisers for the as-completed value.
• The offer that gives either a free lock extension or a float-down—whichever aligns with your risk.
• The loan officer who proactively got your builder pre-approved and answered change-order questions without deflection.

If a broker brings a unique program you can’t get elsewhere, I’ll take a slightly slower draw process in exchange for the right structure. The wrong program at a slightly lower fee is still the wrong program.

Frequently asked questions

• How much down do I need?
• Conventional C2P often requires 10–20% down based on LTC/LTV. VA OTC can be 0% down if you’re eligible. FHA OTC as low as 3.5% for primary residences.

• Can I use land equity as my down payment?
• Yes. If you own the lot, its current appraised value can count as equity. If there’s a lot loan, your equity is the value minus that loan.

• Can I act as my own general contractor?
• Usually no, or only with restrictive terms. It’s possible, but only if you have strong experience and significant liquidity.

• What happens if my appraisal comes in low?
• You either put in more cash, value-engineer the project, or switch lenders with a more local appraiser panel. The builder’s finishes list matters here.

• Are rate locks worth it for C2P?
• For builds 8–12 months out, I like a long lock with a float-down when the cost is reasonable. It’s insurance against ugly surprises.

Bottom line: who actually does construction loans best?

• Banks deliver the most reliable process and the strongest construction departments, especially for bigger loans, longer locks, and complex builds. If predictability and capacity are top priorities, a strong regional or national bank is hard to beat.

• Credit unions often win on relationship pricing and total cost for straightforward, local builds. If your project is in their backyard and you can leverage membership, you may save thousands and get a more personable experience.

• Brokers shine when you need the right niche program or flexible underwriting. A good broker can unlock VA/FHA one-time close, competitive renovation loans, or jumbo programs that your local bank simply doesn’t offer.

The real trick is matching your project’s risk profile and your cash-flow needs with a lender’s strengths. Do the legwork up front—interview the construction admin team, scrutinize the draw process, and model your interest carry. The right lender won’t just fund your home; they’ll help you get it built without unnecessary drama.