Conventional Loan Pre-Approval Requirements for New Construction

The Quick Read: Pre-approval for a new build is ordinary conventional underwriting. The lender checks your credit, income, assets and debts against the same rules it would use for an existing home. Nothing construction-specific happens at this stage except choosing a loan structure. The new-build rules show up later, at the appraisal, the completion check and the conversion to a permanent loan.

That surprises many buyers. They expect a special construction pre-approval with its own hurdles. There isn’t one. What changes is how long your approval has to hold up, because the house doesn’t exist yet and the finish line is months away.

This guide walks through the mechanics start to finish: what is checked, how the file is underwritten, the two main loan structures, where the usual rules break, and what you actually decide along the way.

What a Pre-Approval Is (and Isn’t)

A pre-approval is a lender’s written review of your verified finances, with a maximum loan amount attached. It is not a final approval and not a commitment to lend. Final approval comes only after the property is appraised, the title is clean and the full file is reviewed.

It also differs from prequalification. Prequalification is a quick estimate based on numbers you report. Pre-approval means you handed over documents and the lender verified them.

Is it required? No law requires it. Many builders ask for one before they will hold a lot or sign a contract, because it shows you can finance the purchase. Treat it as your budget and your credibility.

What the Lender Verifies

The lender verifies six things: identity, income, employment, assets, debts and credit. Each one answers a specific question, which is why the paperwork feels repetitive but isn’t random.

• Identity: a government ID and Social Security number confirm who is borrowing.
• Income: recent pay stubs, W-2s and traditional personal-income documentation shows what you earn. Self-employed borrowers typically add business returns and a profit-and-loss statement.
• Employment: the lender confirms the job is stable and likely to continue.
• Assets: bank and retirement statements show cash for the down payment, closing costs and reserves. Reserves are money left over after closing. Large unexplained deposits get questioned, so keep a paper trail.
• Debts: cards, auto loans, student loans and other obligations feed your debt-to-income ratio.
• Credit: the lender pulls your credit report, usually a hard inquiry.

Gift funds are allowed in some cases, and the donor typically signs a letter confirming no repayment is expected. Rental history can also help if your credit file is thin.

How the File Gets Underwritten

Most files run through an automated underwriting system built by the agencies that back conventional loans. Fannie Mae’s version is called DU and Freddie Mac’s is called LPA. You enter your numbers, and the system returns a finding based on the whole picture.

Across the conventional programs Lendmire arranges through wholesale lenders, the framework looks like this. These figures are subject to lender guidelines and full file review.

• Credit: the wholesale programs start at a 620 decision score. An adjustable rate under manual underwriting starts at 640.
• Debt-to-income: the automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45%, depending on reserves and score factors.
• Down payment: a first-time buyer on a one-unit primary home can go to 97% LTV (3% down) with a fixed rate. Standard purchases go to 95% LTV (5% down). LTV, or loan-to-value, is the loan as a percentage of the home’s value or price.
• Mortgage insurance: required above 80% LTV. You can request cancellation at 80% of the original value with good payment history, no second liens and no drop in value. The servicer must end it automatically at 78%.

Past credit events carry agency waiting periods: four years after a chapter 7 discharge, seven after a foreclosure, and four after a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.

If you want the program side in one place, Lendmire’s conventional loan programs page lays out the options.

The agencies publish these limits in their eligibility rules. The Fannie Mae Eligibility Matrix shows that for a one-unit principal residence, the maximum LTV for a purchase is 97% on a fixed rate and 95% on an adjustable rate. Those are agency caps. Your own approval can land lower.

The Two Structures: One Close or Two

Here is where new construction actually differs. Fannie Mae supports two construction-to-permanent structures, per its Learning Center.

Single-closing. You close once. That one closing covers both the construction financing and the permanent loan. The lender manages payments to the builder during the build. Because the permanent terms are already in your loan documents, the loan converts automatically when construction is complete. You underwrite once and pay one set of closing costs.

Two-closing. You first close a separate construction loan. When the home is finished, you close again on a permanent loan, processed as a refinance. That means a second underwriting and typically a second set of closing costs.

The same page of Fannie Mae’s matrix explains the transaction types: single-closing loans are processed as purchases or limited cash-out refinances, while two-closing loans are processed as cash-out type refinances.

Freddie Mac has its own version. Its Guide section 4602.2 describes “One-Time Close” loans, where the permanent note is signed when the interim construction financing closes. The loan then converts, either automatically or through a single modification. The construction phase is structured as a temporary loan, and the permanent loan is underwritten on its own terms.

Buying a finished or nearly finished home from a builder is simpler. That is a normal purchase. The new-construction appraisal and completion rules still apply, but you skip the construction-loan structure entirely.

What Changes Because the House Isn’t Built Yet

Your credit and income review looks the same. These items are different.

The appraisal. For new or proposed construction, the appraiser can work from plans and specifications or from a comparable model home. The home is valued “as completed” and “subject to” completion. In a single-closing loan, leverage is measured against the lesser of the purchase price (construction cost plus lot) or the appraised value.

The land. Guidance for these loans generally expects you to own the lot before construction starts, either already or as part of the transaction. Confirm how your lender treats lot equity toward your cash contribution.

Completion. The lender must verify the home is finished before the loan is sold to the investor. The agencies are moving to a new appraisal data standard that retires old form numbers, so don’t fixate on form names. What matters is that someone documents completion.

Postponed items. A few small unfinished items, like landscaping, can sometimes be handled after closing. These need an escrow and a certification. They are a narrow exception, not a way to close on a half-built house.

Timing. The investor cannot buy a single-closing loan until construction is complete and the loan has converted. The lender carries the loan during the build. If the home stalls or a lien appears, conversion stalls with it.

Where the Usual Rules Break

Several edge cases catch buyers off guard.

• Condos and co-ops. Per the Fannie Mae matrix, co-op units and attached units in a condo project are not eligible for construction-to-permanent financing. A unit in a new condo project also has to sit in a project that is substantially complete, meaning a certificate of occupancy exists and the buildings in the legal phase are finished.
• Cash-out. Fannie Mae processes single-closing loans as purchases or limited cash-out. Freddie Mac allows cash-out on its construction product for site-built homes only. The two programs differ, so a loan that fits one may not fit the other.
• Manufactured homes. A new manufactured home not yet attached to land can be appraised on plans or a model, with a completion certification required. Freddie Mac also covers a new one-unit manufactured home never attached to a foundation.
• Second homes and investment property. Occupancy changes leverage. Don’t carry the primary-residence numbers over. Second homes top out at 90% LTV on the standard purchase rules.
• Changing the terms. Freddie’s structure allows a limited modification at conversion. Changes beyond what is permitted push the loan into a two-closing structure.

What Can Break an Approval During a Long Build

A build runs many months, and your pre-approval has to survive the wait. Documentation gaps cause more trouble on these files than credit problems do. Here is the usual failure list.

1. New debt. A car loan or a card balance raises your debt ratio. Hold off on financing anything until you’ve closed.

2. A job or income change. Employment is re-verified before the loan converts.

3. Aging documents. Credit and income documents have an age limit. The limit can be extended when conditions are met, but a long delay can trigger requalification. Fannie Mae changed its single-close rules in an announcement to address credit and valuation risk, including requalifying when updated documents or LTV change. Freddie Mac allows substantially longer document ages for qualifying One-Time Close files.

4. A low appraisal. If value comes in under cost, leverage changes. Mortgage insurance can change with it, and you may need more cash.

5. Liens or an unfinished home. All construction liens must be satisfied, and the home must actually be complete.

Your closing costs can also move. For new construction where settlement is expected more than 60 days after your original Loan Estimate, the lender may reissue disclosures. The CFPB’s TRID FAQs also explain that a lender can treat a construction-permanent loan as one transaction or as separate ones, so you may see one combined set of disclosures or separate sets. Read each Loan Estimate carefully. The construction-phase numbers can differ from the permanent loan.

A Worked Example (No Dollars, Just Percentages)

Say you are a first-time buyer building a one-unit primary home. You choose a single-closing structure and put 3% down, which is the maximum leverage for a fixed-rate first-time purchase on the schedule above. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

Your pre-approval comes back with a decision score above the 620 floor and a total ratio well under the 50% ceiling. Because you are above 80% LTV, mortgage insurance applies, and it comes off later per the 80% and 78% rules. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

Then the project moves forward. The appraisal supports the cost of the home plus the lot. Leverage holds. Months later, the lender re-checks your documents and employment before conversion. Nothing changed, so the loan converts to the permanent terms already written into your documents.

Now change one detail. Suppose the appraisal comes in below the cost of the home and lot. Leverage is measured against the lesser figure, so your LTV climbs. You either bring more cash, renegotiate with the builder or reconsider the structure. The pre-approval didn’t fail. It was a ceiling, and the appraisal moved the real number.

Reading Your Pre-Approval Letter

A pre-approval letter usually lists the maximum loan amount, the loan type and term, conditions, an expiration window and your lender contact. Treat the amount as a ceiling, not a target. Your comfortable budget is often lower.

The conditions matter as much as the number. They tell you what must stay true until closing. Ask the lender how long the letter stays valid and how renewal works, because a long build can outlast it.

Key Terms Defined

Pre-approval: a lender’s written review of your verified finances, with a maximum loan amount, not a commitment to lend.

Single-closing loan: a construction-to-permanent loan where you close once and the loan converts automatically when the home is finished.

Two-closing loan: a separate construction loan followed by a second closing on a permanent loan.

LTV (loan-to-value): the loan amount as a percentage of the home’s value or price.

Reserves: money you still have after closing, which lenders count as a safety cushion.

Conversion: the point where a construction-phase loan becomes the permanent mortgage.

What Your Decision Looks Like in Practice

Your real decisions are few. Pick single-closing or two-closing. Decide how much cash cushion to hold for a low appraisal. Keep your finances frozen until the loan converts. And ask your builder whether a preferred lender is required or only encouraged, since that is a business choice you can usually compare against other options.

Gather your documents before you apply, so the lender’s review isn’t waiting on you. If you want a deeper look at how closing costs and builder contributions interact, Lendmire’s piece How Much a Seller Concession Saves on a New Construction Conventional Loan covers it. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Reach the team at 828-256-2183.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Eligibility Matrix

2. Fannie Mae Learning Center: Construction-to-Permanent Financing

3. Freddie Mac Guide section 4602.2

4. Fannie Mae Announcement SEL-2022-02

5. CFPB TRID FAQs