by Christy Heitger-Ewing

You’ve found the perfect contractor to build your home! Now you just have to finance it.

The mortgage loan application process starts with an evaluation of assets, income, employment, and credit. It is a complex process that can be overwhelming to navigate, but it ensures that no detail for your custom home will be overlooked. It helps to work with an expert who can walk you through the entire process from the beginning to the end. TCU has a panel of expert appraisers whose expertise is in evaluating the construction home plans.

“Many people buy their lot a year or more before they break ground. In that case, I can use all the equity on the appraisal towards your funds to close,” says Albert Gonzalez, mortgage loan originator at Teachers Credit Union (TCU). For example, if you’re building a $1M house and you paid $250K1 for your lot at least 12 months ago, you’ll get credit for the $250K toward the funds to close on your house. Effectively, you’ve already put 25% down on your $1M build. When doing mortgage loan applications, TCU adds together what the consumer paid for the lot and what the house will cost to build (e.g., a $1M house plus a $250K lot makes the total acquisition cost $1.25 million).

“Our loan-to-value is gathered from taking that total acquisition,” says Gonzalez, noting that normally with these price points, customers generally put 20% down. “If it’s $1.25M total acquisition and 80% loan-to-value, 20% down would be a $1M loan amount so if you’ve paid for that lot in the previous 12 months, for all intents and purposes, you could just pay closing costs at closing because you have that equity in the lot, which many people don’t know.”

After the mortgage loan application process comes the appraisal. There are two approaches with appraisals. There’s the sales comparison approach, which takes historical data going back 12 months or more of the number of houses that are already registered with MIBOR or on the BLC listing report. Then there’s the cost approach, which shows what you paid for the lot or what it’s worth today and the total cost of construction.

“The cost approach value has always been part of an appraisal but not typically used by lenders. With the drastic changes in the market and values specific to new construction we have decided to use the cost approach in scenarios with a 20% down payment as it is a more accurate number based on current land values and cost to construct numbers,” says Gonzalez.

Once the borrower has closed on the construction loan their payments are interest only on the funds disbursed to the builder until the house is complete. For a $1.25M home that takes 12 months to build, you’re probably doing a $200K disbursement every two to three months. Not only does the borrower authorize the disbursements, but TCU also sends an inspector out to evaluate the progress of the home to be sure it matches up consistently with the draw schedule.

After all the inspections and draws have been disbursed, the consumer receives a certificate of occupancy, though things like landscaping may still need to be completed. Communication doesn’t stop after closing. Oftentimes homeowners will sell their current property or have funds they want to apply towards the principal so after the house is complete, TCU will do a principal reduction payment.

“Homeowners might put $200K, $300K, or $500K down on principal, and we can then re-amortize their payment to reflect the new lower balance,” says Gonzalez. “That’s a huge feature.”

Learn more about the construction loan process with TCU, connect with Gonzalez at or call (317) 605-3383. NMLS #167553