How to Line Up Conventional Loan Pre-Approval for New Construction

The Quick Read: Start by choosing the structure, because “new construction” covers three different loans. A finished builder home is an ordinary purchase loan. A build on your own lot is usually a single-closing construction-to-permanent loan, and a two-closing structure splits the build and the permanent loan. Pre-approval is a lender’s conditional review of your documents and credit, not a final approval, and it only helps if it matches the build.

What Does “Pre-Approval for New Construction” Actually Mean?

Pre-approval is an industry practice, not a regulated term. A loan officer verifies your income, assets and debts, pulls your credit, and runs the file through automated underwriting. The result is a conditional letter. It is not a commitment to lend, and it does not lock anything in.

For a build, the letter carries one more condition: the project itself. The lender still has to review the builder, the plans and the “as completed” value. So you are really passing two reviews, one on you and one on the house.

Across the wholesale programs Lendmire places consumer files with, the borrower review is the easy part to prepare. The project review is where files stall, usually because the structure was never settled up front.

Which of the Three Structures Are You Buying?

The structure decides everything that follows, so settle it before the file goes into automated underwriting. Each agency’s system is run on the intended structure, and a later change to the loan term means a rerun.

Fannie Mae calls the one-closing version single-closing. Freddie Mac calls it One-Time Close. Freddie Mac’s product can be paired with low-down-payment programs such as Home Possible, per its construction-to-permanent product page.

Here’s the catch with buying from a builder’s inventory. If the home is done, you don’t need a construction loan at all. If it’s nearly done, the lender confirms completion before closing, and some small items can be postponed for a valid reason like weather. Ask your lender how that is documented.

How Is the Loan Underwritten, Step by Step?

Here is the sequence a conventional file follows. Each step has a “done when” test.

1. Pick the structure. Done when your loan officer names the structure and the agency it will be delivered to.

2. Settle lot ownership. If you don’t own the lot at the first advance, the loan is a purchase, and the proceeds buy the lot and fund construction. If you held title before that, it is processed as a limited cash-out refinance that pays off liens on the lot and funds the build. Fannie Mae’s single-closing rules draw that line.

3. Build the all-in budget. Land, construction, permits, utilities and a contingency. Done when the total is on one page.

4. Submit documents and credit. Done when automated underwriting returns a finding on the right structure.

5. Get the letter. Done when it names the loan type, occupancy and the amount you were reviewed for.

6. Move to the project review. Builder credentials, plans, specifications and the appraisal.

How does leverage work on a build?

For a purchase, loan-to-value divides the loan by the lesser of cost (construction plus lot price) or the “as completed” appraised value. That means a low appraisal costs you cash, not the lender.

Within the standard purchase envelope, one-unit principal residences reach 97% LTV (3% down) with a fixed rate when at least one borrower is a first-time buyer, and 95% LTV (5% down) otherwise. Mortgage insurance applies above 80% LTV. You can ask to cancel it at 80% of the original value with good payment history, and the servicer must end it automatically at 78%. All of this is subject to lender guidelines and full file review.

On a build, down payment is measured against total cost. Fannie Mae’s single-closing summary matrix says you use your own funds for the minimum contribution unless LTV is 80% or below. Gifts are limited to certain one-unit principal residences. That matrix is an older document, so your lender will confirm it against the current Selling Guide.

What credit and ratios does the lender look at?

The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total debt ratio ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45%, depending on reserves and score factors. Waiting periods after credit events follow agency rules: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu, shorter with documented extenuating circumstances.

How Do Builders and the Appraisal Fit In?

Builders often want to see a letter before they start, and many lenders review the builder too. The appraisal happens before the house exists. For new or proposed construction, it relies on plans and specifications, an existing model home, or other information that shows quality and character, per the Fannie Mae Selling Guide.

At the end of the build, completion is verified on Form 1004D or Form 442. Both refer to the same completion report. Fannie Mae also accepts a borrower and builder attestation letter in place of the form for new or proposed construction. All work must be complete and paid for, and related liens cleared, before the loan can be purchased.

Two things to ask the builder. First, whether the contract’s schedule fits the period limits below. Second, whether the builder’s preferred lender can deliver the structure you chose. Their lender may be fine, but you are free to compare.

What Happens When the Pre-Approval Ages Out During the Build?

A long build can outlast your documents. This is the gap most tip pages skip, and it is where a single-closing loan gets tested.

Fannie Mae’s baseline says income, employment and credit documents can be no more than four months old at conversion. An exception stretches that to 18 months if its conditions are met, and the borrower is re-qualified. The exception was extended in Fannie Mae’s announcement SEL-2025-09, which also removed the minimum representative credit score requirement for it. Asset documents are not re-verified at conversion unless re-qualification needs more reserves or you bring additional funds.

Freddie Mac’s One-Time Close rules are different. Documents may be older at permanent financing than the baseline allows, but only if every condition holds. The loan must be an Accept finding, the documents must fall within Freddie Mac’s required window relative to the interim construction note date, and self-employed borrowers must show the business still exists. A pre-closing employment check still applies to employed borrowers.

Don’t assume either window is automatic. Fannie Mae and Freddie Mac differ on naming, document age and structure.

How long can the build run?

Fannie Mae’s single-closing loans cap any single construction period at 12 months and the total at 18 months, per the summary matrix. A longer build must be processed as a two-closing transaction. Those limits do not apply to two-closing loans.

Interim phase, in plain terms: the originating lender carries the construction. Fannie Mae will not buy a single-closing loan until construction is finished and the loan has converted to its permanent terms.

What Can Break an Approval Mid-Build?

Anything that changes your file. A job change, a new debt, a large unexplained deposit or a credit-score drop can force re-qualification once documents age out. Fannie Mae also requires reverification of credit history after closing, and undisclosed non-mortgage debt can affect the loan.

Do these during the build:

• Keep your job and income documentation steady.
• Hold off on financing a car, furniture or appliances.
• Keep reserves in the account and document any gift or transfer.
• Tell your loan officer about any change, even a small one.

Skip these: opening new credit, moving money between accounts without a paper trail, and changing the loan term without a rerun. The final automated submission must match the final loan terms, so if the term changes, such as from a 30-year loan to a 15-year loan, the file needs to be rerun before it is submitted.

Where Does the General Rule Break?

Named edge cases worth knowing:

• Condos and co-ops. Attached condo units and all co-op properties are ineligible for Fannie Mae construction-to-permanent financing.
• Cash-out on a lot you own. Single-closing treats lot ownership as a limited cash-out refinance. A borrower wanting true cash-out must restructure as two-closing, and Fannie Mae’s FAQ says the borrower must have held title to the lot for at least six months before the permanent closing. Freddie Mac dropped that six-month requirement where a borrower inherited or was legally awarded the land.
• Tear-down and rebuild. Fannie Mae’s FAQ allows single-closing to demolish an existing house on a lot you own and build a new one.
• Site prep. Freddie Mac lets interim proceeds fund site preparation, including removing a manufactured home.
• Manufactured homes. Eligible for both one-close and two-close construction-to-permanent under conditions.
• Second home or rental. If you plan to occupy the home, it’s a principal residence. Occupancy sets the leverage, and second homes top out lower than a principal residence.
• Self-employed borrowers. The same document-age and re-qualification logic applies, with business verification added. Ask your loan officer how your income will be documented before you choose a build date.

What Does a Pre-Approval Not Lock In?

Three misconceptions come up often.

“The letter locks my loan.” It doesn’t. A Loan Estimate has a separate field showing whether a rate is locked, and lock terms come from the lender. On a long build, ask how long a lock runs and what extension terms apply. A delayed build has led to extension fees, so this question is worth asking early.

“Approved once, done.” On a single-closing loan, documents age during the build, and re-qualification can be required.

“Fannie Mae funds the build.” It buys the loan only after completion and conversion.

During construction you typically pay interest only on the funds drawn, so payments start small and rise with each draw.

Key Terms Defined

Single-closing loan: One loan that covers construction and then converts to the permanent mortgage without a second closing.

Two-closing loan: A construction loan that closes first, followed by a separate permanent loan.

“As completed” value: The appraised value of the lot and finished home, based on plans and specifications.

Limited cash-out refinance: A refinance where proceeds pay off existing liens and costs, with only incidental cash back.

Form 1004D: The appraiser’s completion report confirming the work is finished.

Re-qualification: A fresh review of income, credit and reserves when documents have aged beyond the allowed window.

What Does the Decision Look Like in Practice?

Picture a buyer who owns a lot and wants a custom home. They choose single-closing, confirm a 5% down payment target with a limited cash-out treatment, and ask about document age before signing the builder contract. If the build looks like it could run long, they should start with two-closing. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

A second buyer is purchasing a completed home from a builder. That file is a plain purchase, with completion evidence at closing. Same pre-approval steps, far fewer moving parts.

The decision comes down to a short list: the structure, lot ownership, how long your documents stay valid, the appraisal against cost, and clean completion evidence.

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. Lendmire’s conventional loan programs are arranged through wholesale lenders.

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

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide B5-3.1-02 (Single-Closing)

2. Freddie Mac Guide 4602.2 (One-Time Close)

3. Freddie Mac Construction to Permanent product page

4. Fannie Mae Construction-to-Permanent Financing summary matrix

5. Fannie Mae Selling Guide B4-1.2-05

6. Fannie Mae SEL-2025-09 announcement