by Christy Heitger-Ewing

Building a new home is exciting, but it can also come with some frustration. That’s why it’s a good idea to work with a seasoned lender who can help facilitate the process in order to help avoid two common setbacks.


Building a new home from the ground up presents a challenge with the appraisal process. Conventional homes are appraised using the sales comparison approach. This compares a home to other comparable properties in the area to produce a “best opinion of value” for the home. However, in the case of a new construction home, there is nothing to appraise yet. Therefore, the ability to use the cost approach comes into play, which takes into account both the value of the lot and the cost for constructing the home. This can be a tricky situation, because in many cases, homeowners have purchased the lot up to 12 months prior. So, using this method can be advantageous for the homeowner, because that lot has likely increased in value.

“Sales comparison and cost approach can vary significantly from one another,” says Albert Gonzalez, a mortgage loan originator at Teachers Credit Union (TCU). “Obtaining your sales comparison number involves going back 12 months to look at houses that have already sold in the area that are of similar size, shape, and condition. With new construction, the cost approach uses the true cost value of the lot and construction, since there is nothing to accurately compare it to, as the house has not yet been built. Therefore, using these two methods is like comparing apples to oranges, because they take into account different scenarios.”


Another component of the new construction process that can cause a setback is the pre-approval process.

“It’s important to be up-front and transparent with your lender,” says Gonzalez. “Therefore, it’s necessary to provide the most accurate and current income information when applying for a loan. This will obviously make the process smoother and more time efficient.”

For instance, in the case of self-employed borrowers, lenders need to see that their cash flow is commensurate with the value of all their debt. Meaning, borrowers will need to prove that they can afford to pay back the loan, so transparency is paramount for the appropriate funds to be granted.

Gonzalez and his team at TCU always complete a cash flow analysis worksheet for their self-employed borrowers prior to getting under contract with the builder to avoid this very situation. This way the accurate information is disclosed and there should be no income challenges during the loan process.

“New construction brings a different set of challenges to the table,” explains Gonzalez. “So, it’s always recommended to work with an experienced lender to help navigate this process to avoid common pitfalls.”

To learn more about the construction loan process with TCU, connect with Gonzalez at or call (317) 605-3383.