A quick call should do it. She will simply go to her banker and because of her excellent relationship, she will give him the construction loan she needs to build her house. Now where is that “easy button”?

Okay, maybe you don’t think it’s going to be that easy, but surely it can’t be that worrisome, right? The construction loan is a unique animal. Not many lenders are experts at it and many lenders don’t even touch it. It takes some real experience and good management for a lender to control you and make a profit.

What is a construction loan?

The home construction loan finances your home construction project. The lender sees it as a risky proposition. They are asked to fund a pledge. All loans are a promise to pay, yes, but a construction loan is a promise to pay without much collateral. There is no home there to recover if it is not completed. It’s not something all banks are eager to get involved in.

These loans can be profitable for lenders, but they should reduce their risk as much as possible before committing. It is this risk reduction that makes them seem so demanding with their rating standards.

Here’s what to ask your lender before moving forward with your home construction plans. Your answers will enlighten you about your requirements.

• Will they accept you as an owner builder or will they require a licensed contractor?

Make sure your banker knows what your goal is. Are you a true owner builder? Are you going to hire a general contractor? What is your policy on owner involvement?

• Does your bank screen contractors for approval?

Many banks and other lenders will have final say in which builder or general contractor you use. Others that allow Owner Builder programs will likely require a home construction trainer. How do they get approved?

• What kind of capital does the bank require you to have first?

Does your land need to be free of loans or encumbrances? Will you be asked to put additional money into the project?

• Do they use a “builder control” system to pay bills?

How is money disbursed throughout your home construction project? Will you be in charge of the money paid? What will the paperwork be like? How much will it cost to run this?

• Will you be required to make the construction loan payments?

If you don’t make your construction loan payments down the road, how much interest reserve will you need to include in the loan?

• How many months is the construction loan term?

Home construction loans are usually very short-term loans. They vary from six to 12 months on average. What is your policy if you end up needing more time?

• Will the loan automatically convert to a 30-year mortgage?

You can see from this that it’s important to start this conversation early. There are many hoops to jump through and it is an ongoing process. You may not be able to proceed exactly the way you envisioned.

Finally, getting a loan to build your dream is only part of the reality of doing it. My advice is to go with the flow and provide your banker with what he needs. She wants to do it too! Just make sure you communicate well. Ask questions and understand the reasons for the requirements. She will make your life easier. Even if you are operating without that ghost “button”.