Construction Financing Process

Make the most of your home building experience by educating yourself on the financing options and process. We have resources available to help.

Construction Financing Process:

1. Choose a builder.

Choose a builder who constructs quality homes and understands what you want. Once you’ve decided what type of home you want to build, consider these tips to help you through the builder selection process:

  • Contact your local builders association for a list of builders in your area. There are many online resources that provide information about selecting a builder
  • Ask friends, family and real estate agents for referrals. Talking to someone who worked with a builder is a great way to get information about that builder’s responsiveness, communication style and availability
  • Create a list of potential builders and meet with each of them. Bring visuals, discuss your goals and get answers to all of your questions
  • Ask the builder for references and visit a few of their recently built homes. Talk to the owners to get their feedback. Inspect the quality of those homes by examining cabinets, trim work, paint and other finishes

Building a home is a complex process so you want to spend as much time as necessary to understand your options and choose the builder that’s right for you.

2. Review our step-by-step construction financing guide, F A Qs and terms.

Be sure to print our comprehensive guide and review our construction financing FAQs and terms.  These materials include important information about the type of home you are planning to build, answers to some of the questions you may have and terms you may encounter throughout the process:

3. Get pre-approved.

Pre-approval is the first step in the mortgage process. We determine the maximum loan amount you qualify for based on the income, asset and debt information you provide. An M&T pre-approval provides you with the confidence of knowing how much you can afford before you start building. It takes just a few minutes to start your pre-approval.

4. Contractor Registration Process

Each builder is required to register with M&T. We have a dedicated team available to assist you and your builder with this process.

5. Disbursement (or draw) Schedule

A disbursement (or draw) schedule is a timetable of payments to your builder or general contractor. Disbursements are made as predetermined construction milestones are completed.  You have the flexibility to tailor your draw schedule to your builder’s preference, subject to M&T approval.
Once each phase of construction is completed, you or your builder will request a disbursement as outlined in your draw schedule. A few important things to note:

  • A building permit must be received prior to the start of construction
  • An inspection must be completed prior to each disbursement to the builder
  • A title update will be performed prior to each disbursement to ensure that no mechanics’ liens have been filed
  • During construction you will make monthly interest-only payments on your loan, and that payment amount will increase from month-to-month as additional draws are paid to the builder
  • Your required cash investment must be paid to the builder before any disbursements will be made by M&T
  • You are responsible for any property taxes before your home is completed. M&T does not establish an escrow account during construction

6. Mortgage Application

Once you have contracted with the builder of your choice, you’re ready to apply for a mortgage. At the time of application, you will be asked to provide:

  • Two months of pay stubs
  • Two years of W-2s
  • Two years of federal tax returns
  • Two months of bank statements
  • Other applicable financial documents
  • Signed construction contract and contract of sale for the land (or recorded deed if the land is already  owned)
  • Plans and specifications for the new house
  • Any applicable fees

7. Mortgage Approval

When your signed application, required financial documents and appraisal are received, a mortgage underwriter will review your information and make a credit decision. Once approved, M&T will issue a commitment letter that outlines any conditions that must be met prior to the closing of your loan.

8. Insurance Requirements

Prior to closing your construction loan, you or the builder will be required to purchase a builders’ risk insurance policy to cover theft, loss and damage to building materials while your home is built. Mortgage insurance and/or flood insurance may be required, if applicable.

9. Construction Loan Closing

Once the draw schedule is finalized and any other closing conditions have been met, your loan can be prepared to close.  M&T offers both a one-close and two-close option. With the one-close option, this will be the only closing that occurs. With the two-close option, you obtain a construction loan to build your home and when your home is finished, you refinance your construction loan into a permanent mortgage.

10. Permanent Mortgage Closing

With a one-close loan, your construction loan will rollover to a permanent loan when your house is complete. With the two-close option, we will update your financial information and refinance to your permanent loan. Prior to closing on your rollover or permanent loan, a Certificate of Occupancy is required. Permanent mortgage loan payments include principal, interest, taxes, homeowners’ insurance, and mortgage and/or flood insurance if applicable.

M&T does not endorse specific builders or lots, nor does M&T make representations regarding the quality of any builder’s work or materials. M&T advocates the value of homebuyers educating themselves about the home building process.