#24 Construction Loans Buyer Checklist You Need To Know Before You Spend Your Money. 70 Buyer-Beware Intelligence Points.

A. 25 BUYER BEWARE WARNINGS

1. A loan commitment is not necessarily the same as cash immediately available.
2. LTC and LTV measure different things; don’t confuse them.
3. The lender may calculate eligible project costs differently from your budget.
4. Some soft costs may be excluded or limited.
5. Your land value may not count as equity dollar-for-dollar.
6. Construction funds are commonly released through controlled draws.
7. Draw delays can create cash-flow problems even when the project is profitable on paper.
8. Interest reserves may be inadequate if construction runs late.
9. A contingency is not permission to underestimate the project.
10. Change orders can destroy a previously workable budget.
11. A low contractor bid may omit important scope.
12. Contractor experience matters as much as the headline price.
13. Permits and approvals can become financing bottlenecks.
14. Utility, drainage, access and site conditions can create major unexpected costs.
15. Construction schedules are estimates, not guarantees.
16. Your loan may mature before the project is ready for sale or refinancing.
17. A future permanent loan is not automatically guaranteed.
18. A future sale is not automatically guaranteed.
19. The completed property may appraise below your projection.
20. Cost overruns may become your responsibility.
21. Personal guarantees can expose assets outside the project.
22. Default provisions can become extremely expensive.
23. Extension options may involve additional fees or stricter conditions.
24. A profitable project can still fail because of a liquidity shortage.
25. The most important question is not “Can I get the loan?” but “Can I finish the project if things go wrong?”

B. PREMIUM CONSUMER BUYER CHECKLIST

MISSION

Determine whether the proposed financing can realistically carry the project from land/acquisition → construction → completion → sale/refinance under both normal and adverse conditions.

1. PROJECT DEFINITION

☐ Property and parcel identified
☐ Intended use documented
☐ Plans/specifications available
☐ Construction scope defined
☐ Current land/acquisition basis documented
☐ Existing liens identified

2. TOTAL PROJECT COST

☐ Land/acquisition cost
☐ Hard construction costs
☐ Architecture/engineering
☐ Permits
☐ Surveys
☐ Legal/title/closing costs
☐ Insurance
☐ Taxes
☐ Financing costs
☐ Interest/carrying costs
☐ Marketing/sales costs
☐ Contingency
☐ All known costs reconciled to one master budget

A construction financing package should reconcile plans, budget, schedule, permits, contractor, equity and exit rather than treating the loan application as an isolated document.

3. LOAN STRUCTURE

☐ Total commitment identified
☐ Initial advance identified
☐ Future draw schedule documented
☐ Interest rate understood
☐ Interest calculation method understood
☐ Fees itemized
☐ Extension fees identified
☐ Default rate identified
☐ Maturity date identified
☐ Prepayment terms reviewed
☐ Guarantee requirements understood

4. DRAW SYSTEM

☐ Draw milestones documented
☐ Inspection requirements understood
☐ Required documentation identified
☐ Minimum draw amounts known
☐ Draw processing time established
☐ Borrower-funded work between draws modeled
☐ Disputed draw procedure understood

5. BUILDER/CONTRACTOR

☐ Relevant experience verified
☐ References checked
☐ Insurance verified
☐ Contract reviewed
☐ Scope reconciled with budget
☐ Change-order procedure understood
☐ Contractor financial capacity considered

6. EXIT

☐ Sale exit documented
☐ Refinance exit documented
☐ Permanent lender identified if applicable
☐ Estimated completed value independently tested
☐ Selling costs included
☐ Refinance assumptions stress-tested

7. STRESS TEST

Run the project again assuming:

☐ 10% construction-cost increase
☐ 20% construction-cost increase
☐ 3-month delay
☐ 6-month delay
☐ 12-month delay
☐ Lower completed valuation
☐ Lower sale price
☐ Higher permanent-financing rate
☐ Reduced refinance proceeds

FINAL DECISION RULE

DO NOT PROCEED if the project only works when the budget, schedule, valuation, sale price and refinance assumptions all go right.

FINAL QUESTION

If construction costs rise 20% and completion takes six months longer, where does the money come from?

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